It’s very uncommon in a marriage for both spouses to earn equal amounts of money. If one spouse is the primary earner, the other spouse may opt to stay out of the workforce either to spend more time raising the couple’s children or simply because he or she doesn’t need to work. If a couple seeks a divorce, how can they fairly divide their assets?
Should the higher earning spouse get a larger piece of the couple’s shared estate, or would that be unfair to a spouse who put his or her career on hold to care to the children or support the working spouse? Different states have come up with different answers to this difficult question. California is one of a handful of “community property” states that decrees that each spouse is entitled to an equal share of the couple’s community property.
In other words, if you get divorced in California without a prenuptial agreement, you’ll need to split all the assets you earned during the marriage right down the middle with your spouse, regardless of whether you were the primary earner or stayed at home.
Understanding Community Property States vs. Common Law States
When it comes to dividing assets in divorce, states basically fall into two major categories. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are all community property states, where each spouse is entitled to half of the community property. That means that even if you bought a car with your own money while you were married and only your name is on title, your spouse is still entitled to half its value (or responsible for half the debt of your car loan!).
All of the other states in the union fall under “common law” practices. In common law states, a judge has the power to divide assets in a way that he or she deems fair.
Alaska and Tennessee are slightly unusual in that couples in those states can choose either to adhere to common law or community property standards.
Understanding Community Property
In order to grasp how asset division in a community property state works, you need to understand what constitutes community property in the first place. Basically, community property is any income, asset, or debt introduced during the marriage, with the exception of an inheritance or a gift. So, for example, every paycheck you take home from the time you are married is considered community property. If you invest that money in a 401(k), that is also community property. If you buy a house while you are married, the house will be community property. How about a business? If you start a business while you are married, then your spouse is entitled to half of it!
Assets Owned Before Marriage
What if you owned a car before you got married? Is your spouse entitled to half its value? The answer is likely no, assuming your spouse did not help pay for the car before you were married or that you did not spend a significant amount of money repairing the car after you were married. Questions of ownership before marriage can be tricky. For example, even if you owned a house before you were married, your spouse may be able to claim some ownership of the equity. If your spouse helped cover the mortgage payments or a remodel while you were married, the line between separate property and community property begins to blur! This is why you need the help of a skilled divorce attorney to determine what qualifies as community property versus separate property.
How to Get Around Community Property Standards
In California, each spouse is entitled to an equal share of community property, but that doesn’t mean you have to literally split everything evenly down the middle. In most cases, divorcing spouses have different priorities when it comes to dividing assets, which is where negotiation comes in. For example, you may want to keep the house. If your spouse doesn’t care about the house, he or she can negotiate for something else in exchange for his or her share of the home’s equity. As long as you both agree to the divorce settlement, a California court won’t reject it.
Of course, the best way to avoid having to hand over half of your assets, (especially if you are the higher-earning spouse), is to draw up a prenuptial agreement before you marry or a postnuptial agreement after marriage. A lot of couples complain that prenuptial agreements are “unromantic,” but we like to say that if you don’t make a decision on how you want to divide your assets in the event of divorce, California will make the decision for you!
If you live in or around Orange County, California and are considering divorce, get the knowledgeable and understanding legal guidance you need! Contact Bohm Wildish to schedule a consultation.