What are the Most Common Misconceptions About Property and Divorce?

California is a community property state. At the time of the divorce, the Court will generally divide in half all of the community assets and all of the community debts. Determining what is, or is not, community property in particular circumstances can lead to misconceptions and misunderstandings. Here are a few examples:

1. My spouse inherited money during the marriage. Am I entitled to half in the divorce?

Generally, no. Property owned before marriage, or acquired by gift, bequest, devise or descent, including rents, issues and profits thereof, is separate property and therefore not part of the division of community property.

1. My spouse and I kept separate bank accounts during the marriage. Are our earnings then, separate property?

No. Most property acquired during marriage, including earnings from employment, is community property. Even if one spouse spends his earnings and the other spouse saves money, at the time of a divorce, those savings would be community property and subject to division. The treatment of earnings as community property could be changed if there is a valid written Premarital or Post Marital agreement. Such agreements are subject to special rules and scrutiny.

1. When we purchased our home, my spouse signed a Quitclaim Deed. Is the house my separate property?

Not necessarily. Under California law, spouses occupy a confidential relationship with each other and are subject to the general rules governing fiduciary relationships. Whenever spouses enter into an agreement in which one party gains an advantage, in a divorce, the advantaged party bears the burden of demonstrating that the agreement was not obtained through undue influence. Determining whether one spouse gained an advantage over the other spouse, or if both spouses benefited from the transaction, is dependent upon the facts of each particular transaction. Determining whether one spouse has taken advantage of the other or exercised undue influence will depend upon the facts of each case and each transaction. If the Court finds that the transaction was the result of undue influence, it can be set aside or disregarded in the divorce. Even if a particular property is deemed to be one spouse’s separate property, the community may still have a partial interest in the property if community funds are used to pay the mortgage or improve the property.

1. My spouse made a gift to me. Is this enforceable?

Transactions where the title or characterization of property are changed are called transmutations. This can include transactions where one party is converting or gifting community property to separate, or separate to community. Generally, the law requires that such transmutations must be in writing. The writing must evidence an intent to transmute or change the character of the asset, and must be consented to or accepted by the spouse whose interest is adversely affected. A transmutation of real property is only effective against third parties if the notice is recorded. There is an exception to this writing requirement for gifts from one spouse to another of “clothing, wearing apparel, jewelry, or other tangible articles of a personal nature” used solely by the spouse to whom the gift is made and not substantial in value, taking into account the circumstances of the marriage. Other than this narrow exception, transmutations must be in writing after January 1, 1985. Disputes can arise in determining whether a particular document meets the requirements to establish a binding transmutation. This issue frequently comes up in the context of estate planning documents and beneficiary designation forms.

1. I worked 30 years to earn my government pension. Are my pension benefits my separate property?

Pension benefits earned over many years of employment can be quite valuable. There are many special rules governing the division of both private and government pension benefits. Pension benefits earned during the marriage are generally treated as community property. While not unlimited, the Family Court has broad discretion to order the division of pension benefits, or the right to receive pension benefits in the future when the earning spouse retires or, in some cases, even before retirement. Don’t overlook, or underestimate, the value and importance of pension benefits in a divorce.

By Jeremy B. Kline, CFLS*

This FAQ was first published in Divorce Magazine and is reprinted with their permission.