When you separate, you and your former partner will have to decide what to do about your  property.   Even if you do not want to deal with these issues, or if you divided your property informally when you separated, the court still needs to make a formal judgment about these issues.  

The property and debts part of a divorce or legal separation is often so complicated and the cost of making a mistake is so high that you should talk to a lawyer before you file your papers, especially if you have anything of value (or if you have significant debt). Keep in mind you may not need to hire a lawyer to take on your entire divorce or legal separation, just the property and debt portion of your case.

In this section, you will find some basic information about California law related to what happens with property and debts when spouses or domestic partners choose to end their relationship.

First, what do we mean by “Property”? Generally, property is anything that can be bought or sold, like:

• A house,
• Cars,
• Furniture, or
• Clothing.

Property is also anything that has value, like:

• Bank accounts and cash,
• Security deposits on apartments,
• Pension plans,
• 401(k) plans,
• Stocks,
• Life insurance that has cash value,
• A business, or
• A patent.

To understand how to divide your property and debt so you can finalize your divorce or legal separation, it is important to understand how property laws work in California when a couple is married or in a domestic partnership. The rest of this section will explain those laws.

Community Property

Property that the couple acquires during marriage/partnership is “community property.” Any debt that the couple acquires during the marriage/partnership also belongs to the “community,” even if the debt was incurred by one spouse or partner.”

In general, the California Family Code says property that was bought (and debt incurred) during the marriage or partnership (community property) are divided equally when the relationship ends.

Quasi-community property

As you previously learned, quasi-community property assets and debts are treated just like community property. Therefore, when the relationship ends, this property is divided equally in the judgment.

Separate Property

Here is a short review of separate property. It is anything that you:

• Owned before you were married or before you registered your domestic partnership.
• Inherited or received as a gift, even during the marriage or domestic partnership;
• Earned as rents, profits, or other money earn from your separate property;
• Bought  using your separate property
• Acquired after the date of separation, including the money you earn or credit card debt.

Here’s an example: If you buy a car with money you inherited from a relative, the car belongs to you even if you bought it during the marriage or domestic partnership, because it was bought with your separate property.

If you have separate property, it is important to remember that it belongs only to you. As long as it was kept separately, the court will confirm that property to you in the judgment for divorce or legal separation.

Mixed Community and Separate Property — Commingling

Sometimes things are part separate property and part community property. This is called “commingling” because the separate property and community property have become mixed together. When property is a combination of separate or community property, it can get very complicated to figure out how to divide it.

Let’s look at two common examples of commingled assets:

Example 1: Family Home. A common situation is when one party owned a house before the marriage or domestic partnership and then sold it and used the proceeds as a down payment on another house after getting married, or after registering a domestic partnership.

In this example, the down payment for this new house would be considered separate property (since the money came from selling a house that one person owned before the marriage or partnership). But, if the mortgage payments on the new house are made during the marriage or partnership using the earnings of either one of you, the equity (value) resulting from paying down the house loan is community property. The result is that the equity in the house is commingled.

Example 2: Pension. Another common situation happens when you or your spouse/partner has a pension or retirement benefit from a job held before and during the marriage.

The contributions you each made to your pension before the marriage or registered domestic partnership are separate property. The contributions made after the date of marriage or registration of the domestic partnership and before the date that you separated are community property. After you separate, those contributions go back to being separate property.

Exactly how the pension is divided is complicated and you may need an expert in pension plans to help you figure it out.  In some situations, if you each have a pension, you both may be able to keep your own pension. But you need to be sure of the value of each pension.

In general, when either spouse/partner has a pension, a lawyer’s help is necessary. First, a pension can be one of the most valuable assets you have from your marriage or domestic partnership. Second, the special rules that apply to pensions are very technical and do not apply to any other kind of asset.

For example, a pension plan must be “joined” as a party in your divorce case before a judge will issue an order about how the pension will be divided. That court order is called a qualified domestic relations order, or QDRO. If you make an error, there could be harmful results. It is worth paying a lawyer to correctly prepare the QDRO for you.

Property can be complicated

It is always a good idea to talk with a lawyer about any property or debts you have to make sure you understand the situation in your case.  Remember, you are trying to make major financial decisions in your life and there are often tax consequences to these decisions.  We have covered some basic concepts, but there are lots of exceptions in property that may affect your case.  Here are some examples:

• You signed a premarital agreement – or an agreement during your marriage – which discusses how to divide your property and debts
• You have a pension, or home or business and some of the value  is from before or after your marriage or domestic partnership
• You have student loans or went to school during the marriage or domestic partnership – generally the loans are paid by the person who went to school – but not always
• You have stock options or other property that can be complicated to value
• You have a personal injury award from an accident

Make sure to take any paperwork with you when you meet with the lawyer and try to write out the questions you have so that the lawyer can provide you with the best advice based on your situation. 

Figure out how to divide your property and debts

So, how are you going to divide your property and debts? A good way to start is to make a list of everything that you own. Then you need to figure out which items are separate property and which items are community or quasi-community property.

Next, you need to determine the value of the assets and debts. The value of community property is based on its fair market value, which is the price that someone would typically pay for the property or its appraised price. In other words, “what it’s worth.” The property value will be set at what it is worth on the date the spouses/partners make an agreement for the division of community or quasi-community property, or the date of the court hearing to decide the property issues.

As you consider the value of the assets, remember that  it is the net value of the asset (the value of the property less any debts against it) that is used in the calculations. So, for example, if you own a house worth $700,000 and there is a mortgage of $300,000 still outstanding on it, the net value of the house is $400,000.  Secured lines of credit, realtor fees, legal fees, penalties and other expenses associated with selling the family home may also be deducted to arrive at the net value of the house.

As we will discuss in the next section, spouses and partners must disclose the list of assets and debts and the value of each before the court will finalize the legal separation or divorce. When you and your spouse or partner disclose this list of assets and debts, you can determine if you disagree about whether something is community or separate; and if there is a big difference in how you value the community property.

This will help you decide whether the case can be settled or whether you will have to go to trial. After comparing the information, you can propose a way to divide the assets and the debts.

When you are ready to propose a division of the assets and debts, you should know that there are many ways to divide common property. Remember, your goal is to split up community and quasi-community property so that both you and your former partner end up with a roughly equal net share.

Community property may be divided as follows:

1. Certain assets may be allotted to each spouse or partner;
2. One spouse or partner may be required to make a payment to the other to compensate for his or her share of the value of a particular asset;
3. The court can order that property, like a home, be sold and the proceeds divided between the parties; and/or,
4. A former partner who generally received more assets can make payments to the other to ensure the equal division of the value of community property. This is called an “equalization payment.”

Financial mediation

As we noted earlier, mediation may help you solve disagreements about money issues and how to divide your property. You can hire a private mediator to help you work out a fair way to divide your property and debts (as well as other issues in your divorce like support or custody and visitation of your children). Private mediators are usually lawyers or mental health professionals. Usually both people share the cost of mediation.