Characterizing and confirming or awarding separate property to the spouse who owns the items is a fundamental issue in most divorces. Complicating matters, separate property is sometimes inadvertently commingled by the owner spouse with community assets despite the owner’s best intentions. In this article, we will provide some general information to help protect your property in a California divorce.
What Is Separate Property in California?
Separate property generally includes all assets and debts acquired by you before marriage as well as the rents, profits, and accumulations thereon, as well as any gifts or inheritances received by you during your marriage. In contrast, all assets and income acquired by you during your marriage, except for gifts and inheritances, are presumptively community property. (This assumes that you have not contracted out of the community property system with a premarital agreement or marital or postnuptial agreement.)
To maintain the individual character of your respective assets, we recommend that you maintain them apart from marital/ community assets or earnings, such as in an independent bank or investment account titled in your sole name.
When Are Separate Assets at Risk?
Separate funds commingled with community property funds or earnings may lose their distinct character if they cannot be traced. For instance, suppose you entered into your marriage with an individual savings or retirement account. This account would most likely be awarded to you in the divorce, provided you or your spouse did not contribute community earnings to this account or make contributions to this account with community funds during your marriage.
Loans are another way that the character of an asset may be impacted. In California, to determine the character of loan proceeds, the court will consider the intent of the lender or bank. Determining the intention of the lender requires an examination of the facts in each case. If the lender relied solely on a spouse’s separate asset as collateral for the loan, then arguably, the loan proceeds are separated as well.
However, if the lender relied on either spouse’s creditworthiness in issuing the loan, the loan proceeds would likely be characterized as community. This is because each spouse’s creditworthiness is considered a communal asset. Determining the character of the loan proceeds becomes even more complex if the lender or bank considered separate and community property assets when issuing the loan, as is often the case. Important care should be taken if you are a business owner taking out a loan to help finance your business. When in doubt, consult with a qualified family law attorney.
Protecting Your Assets During Divorces
The most effective way to protect your separate assets or business is to enter into a premarital agreement or marital agreement with the assistance of independent and qualified family law counsel. At Madigan & Lewis, LLP, we are available to help you protect your separate property. We have decades of experience guiding clients through complex family law matters in the Silicon Valley. Contact us today if you would like more information.