What Happens to Shared Property and Debt in a Divorce?
When you are married, your own finances, property, and debt and that of your spouse become intertwined to the point that you may no longer understand who owns what and who owes what. While you may not see it as a bad thing during the marriage, it can become a problem if you decide to get a divorce.
So, if you're going through the dissolution of your marriage or contemplating filing for divorce, you probably want to know how your shared property and debt will be divided. While California law has clear guidelines for dividing property and debt in the event of divorce, everyone’s situation is unique and may require personal attention from an attorney.
At The Law Offices of Steven E. Springer, our divorce attorneys in Santa Clara County, California, work strategically to ensure that our clients receive their fair share of community property and protect our clients from debts that aren’t their responsibility. With offices located in San Jose and Morgan Hill, we provide counsel and representation to clients throughout Santa Clara County and surrounding areas.
Community vs. Separate Property in California
In order to understand what happens to shared property, called “community property” in legal terms, you need to know how the law defines community property. In California, community property is any property gained during the marriage. It can be nearly everything of value that a married couple earns or acquires from the date of marriage to the date of separation.
Some common examples of community property include:
Real estate
Vehicles
Bank accounts
Retirement accounts
Stocks and bonds
Income
Personal property like jewelry, furniture, antiques, works of art, etc.
As you can see, community property encompasses almost everything that spouses earn or acquire during their marriage, with a few notable exceptions.
Gifts and inheritances specifically given to one spouse are considered the separate property of the person who receives it. So, even if one spouse receives a gift or inherits property during the marriage, that gift and inheritance won’t be subject to a division in the event of a divorce.
Besides gifts and inheritances, any assets owned by spouses before the marriage are also considered their separate property and won’t be counted as community property when spouses decide to end their marriage.
How Is Community Property Divided in California?
Once community property is identified, it will be subject to division. Since California is not an “equitable distribution” state, where marital property is divided in an equitable manner, all community property must be divided equally in a 50/50 split pursuant to California Family Code § 2550.
However, not every item is split in half. It is common practice for spouses to keep different types of assets. For example, one spouse may get the car, while the other may receive all retirement benefits if they are of the same or similar value.
If there is a written agreement (e.g., a prenuptial agreement) that requires the division of property in a particular manner, the couple can deviate from the 50/50 model.
What Happens to Shared Debt?
When it comes to dividing shared debt, also known as “community debt” in California, the courts must follow the same rules as with the division of community property. First, all debts partners have are categorized into separate and community debts, and only then will the court order an equal division of community debts.
As with community property, debt is considered “community” if the spouses incurred it between the date of marriage and the date of separation. Yes, any debts incurred during the marriage become the responsibility of both spouses equally, even if only one spouse acquired a particular debt.
However, if there is any debt that was acquired before the marriage or after the date of separation, it will belong only to the spouse who incurred that debt.
In California, all community debts are split equally. One notable exception to equal division is when the value of the couple’s shared debts exceeds the value of the community property. If that’s the case, the court may order an unequal division of debts and assign more of the debts to the spouse who is more financially capable of paying them off.
What Is the Date of Separation?
As you may have noticed, the date of separation plays a pivotal role in determining how shared property and debts are split in a divorce. But what does the date of separation really mean and how do you know the exact date when you and your spouse separated?
When the partners cannot agree on the date of separation among themselves, it will be up to the judge to establish that date. To do that, California courts use a two-part test:
Physical separation: As the name implies, physical separation occurs when one spouse moves out of the shared home. In some cases, however, spouses may argue that they became physically separated when they stopped sleeping together and began sleeping in separate areas of the shared home.
Intent to divorce: In addition to being physically separated, there must also be an intent to end the marriage in at least one of the spouses.
Again, we cannot stress enough how important determining the date of separation is when it comes to getting a divorce. That’s because, as mentioned earlier, any income earned, any assets acquired, and any debts incurred after the date of separation become the separate income/property/debt of the spouse who earned/acquired/incurred it.
Discuss a Property & Debt Division Matter With a Divorce Lawyer
If you have questions about the division of shared property and debt in your divorce, the divorce attorneys at The Law Offices of Steven E. Springer can help. We have helped countless clients throughout Santa Clara County navigate the division of assets and debts and ensure that they receive a fair settlement. Call our office today to schedule a free consultation with our attorneys.