What is Community Property? Separate Property? How is it Changed?
In general terms, community property (which includes debts) is that which is acquired between the date of the marriage and the date the parties become separated (where “separation” is as defined by the Family Code and case law). Family Code section 760 provides the following: Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property. In other words, there is a rebuttable presumption that the property or debt is community and thereby subject to equal division.
Family Code section 770 provides as follows: Separate property of a married person includes all of the following: (1) All property owned by the person before marriage. (2) All property acquired by the person after marriage by gift, bequest, devise, or descent. (3) The rents, issues, and profits of the property described in this section. This is also enshrined in the California state constitution wherein, at Article One, Section 21, it states that separate property n this community property state is: Property owned before marriage or acquired during marriage by gift, will, or inheritance is separate property.
In other words, there is a rebuttable presumption that property brought into the marriage or received as a gift or inheritance at any time is separate property of that spouse, as well as any income or enhanced value generated by that property.
I am emphasizing “rebuttable”, because a party will have an opportunity to show that all or part of the property is either separate or community property, even though it fits the terms of either Family Code section 760 or 770.
A party can “transmute” separate property into community property. However, this requires a specific writing that expressly indicates a desire to make such a change in character of the property. Family Code section 852 states: A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.
This answers a question quite a few clients pose to us: I inherited money and put it into our joint account. Does that make it community property?
Short answer: No, at least not if it occurred after December 31, 1984. Just putting, or “parking”, the money into a joint account does not satisfy the “express declaration” requirement of Family Code section 852. However, if you leave the funds there and add community funds and it eventually becomes “hopelessly commingled”, it is likely that all funds in that account will be treated as community property.
Remember, the “form of title is not controlling”. That means that if you are married and earn X dollars through employment and place same into an account in your name alone, it is still presumed to be community property. It’s not how you “hold” it, it’s when you earned it that matters.
What happens when Jane comes into the marriage with $100,000.00 (her separate property) and then after marriage uses it as down payment on a house taken in both names. The house was purchased during the marriage, so it is presumed to be community property. Does that mean Jane lost her $100,000.00 separate property? Again, no. Assuming Jane can “trace” her money to the down payment, she will be reimbursed per Family Code section 2640(b) which states in relevant part: In the division of the community estate under this division, unless a party has made a written waiver of the right to reimbursement or has signed a writing that has the effect of a waiver, the party shall be reimbursed for the party’s contributions to the acquisition of property of the community property estate to the extent the party traces the contributions to a separate property source. The amount reimbursed shall be without interest or adjustment for change in monetary values and may not exceed the net value of the property at the time of the division. So if the house has $200,000.00 equity at the time of divorce, she gets $100,000.00 back, off the top, and the rest is divided between her and the other party. What if the house only has $80,000.00 equity? Jane gets it all and loses the other $20,000.00. If no equity, Jane gets nothing.
What if, instead, Jane owned a house before the marriage and adds John to title after the marriage? She didn’t use her case, she just added him to title. Can she still exercise her Family Code section 2640 reimbursement claim? Yes. Per In re Marriage of Kahan (1985) 174 Cal.App.3d 63 and In re Marriage of Walrath (1998) 17 Cal.4th 907 a spouse’s right to reimbursement for separate property contributions to a community property home carries through even when a spouse is added to title or when money is borrowed from another separate property asset and used to buy community asset.
Okay, let’s complicate things a bit. John and Jane are married. They purchase a home but Jane has bad credit so the house is taken in John’s name alone. It was acquired during the marriage, so it is presumptively community property. But Jane signed a deed saying that John is taking title as “a married man as his sole and separate property”. So is that a transmutation? Does the deed rebut the presumption of it being community property under Family Code section 760? Maybe, maybe not. What comes into play here are the fiduciary duty requirements found in Family Code section 721 and a string of cases, sometimes contradictory in effect. It’s an issue that can’t be dealt with in this particular article but one I will address in the near future.
I hope you did not find the foregoing too confusing. I’ve tried to keep it fairly simple. Bear in mind, it’s not simple. The good new is we LOVE this stuff and can provide you with ample assistance if needed.