Community and Separate Property
California law provides that from the time people marry until the time they separate or a spouse dies, property they acquire is presumed to be community property. In which each spouse has an equal interest, as opposed to separate property of a spouse. Thus, familiarity with the law governing community property is important for many reasons, from premarital planning and agreements, to rights on dissolution of the marriage and to estate planning. The community property laws generally can be changed by written agreement of the parties or by certain kinds of conduct discussed elsewhere
California law provides that all property acquired by a person during marriage while living in California is community property, unless it can be shown to be fully or partially separate property. For this purpose, “during marriage” means from the date of marriage until the date of separation. Community property also includes income from community property, such as rent, interest and dividends, as well as property acquired with income or sales proceeds from community property. Thus, the fact that one spouse makes much more than the other spouse does not give the high earner any more or different interest in the community property than the low earner spouse. Furthermore, a California court in a marital dissolution proceeding can characterize property located in another state or country that was acquired during marriage as “quasi-community property” using the same rules as apply to characterizing property located in California. However, the California court’s powers as to making orders concerning property in another jurisdiction are limited compared to property located in California.
Under California law a spouse’s separate property consists of all property owned by the spouse before marriage, all property acquired by the spouse during marriage by gift or inheritance, and all property acquired after the date of separation (unless acquired with community property). Separate property also includes the income from separate property. However, where a spouse spends significant effort during marriage to improve, manage or invest his or her separate property, the community may acquire an interest in the property, which is discussed more fully under our page explaining commingled assets.
Note that a spouse may receive funds or property after separation that are community because the right to the funds or property arose before separation; a similar rule applies to funds or property received after marriage where the spouse’s right to the money or property arose before marriage. An example would be where a spouse is paid after separation for work under a contract that was completed before separation.
Community and Separate Debt
Debt and other legal obligations are also classified as community where they were incurred during marriage or are secured by community property. They are classified as separate where they were incurred before marriage, are secured by separate property or are solely for the benefit of separate property. Additionally, an obligation may be classified as separate where it has no benefit to the community, such as debt incurred to pay for an extra-marital affair or liability for certain crimes and torts that do not benefit the community.
It is not uncommon that community and separate property may both contribute to the acquisition or improvement of an asset, either deliberately or by mistake, see [link]. It is not uncommon that a spouse learns that property they thought was community is actually separate or vice versa when the issue arises in a divorce. Thus, it is advisable to maintain documentation concerning property acquisition and improvement, as well as records from accounts that may hold both community and separate property or funds. Remember that a spouse claiming a property is separate has the burden of proving that claim and if the spouse is unable to do so, it will be treated as community.
Management and Control of Community Property and Duties of Each Spouse to the Other:
Each spouse has an equal interest in the parties’ community property. Thus, the fact that one spouse works is the bread winner while the other takes care of the home and the children, does not give the bread winner any more or different interest in the community property than the homemaker spouse. The fact that each has an equal interest means that with certain exceptions, each spouse has management and control of the community property, including the absolute right to dispose of the property (other than by a will or other testamentary document). A spouse who manages a business that is primarily community property has primary management of the business income and assets. Those exceptions include the family residence, furniture and furnishings, and clothing or personal items of the other spouse or the children, as well as making gifts of community personal property, without the written agreement of the other party.
The other limitation is that each spouse owes the other a duty to act as a “fiduciary” in dealings with the other spouse. As a fiduciary, a spouse must use the highest good faith and fair dealing with the other spouse and cannot take unfair advantage of the other spouse. The fiduciary duties also include providing access to records concerning transactions, provide full information to the other spouse on request concerning transactions involving community property, and if the other spouse did not consent to a transaction in community property, hold any profits on the transaction as a trustee the benefit of the other spouse. If a spouse fails to fulfill his or her fiduciary duties, the court may declare an agreement between the spouses void, as well as award damages or attorney fees to the other party.
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Di Maria & Cone
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Los Altos, CA 94022
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Di Maria & Cone located in Palo Alto, represents clients throughout California, primarily on the San Francisco Peninsula and in Silicon Valley — in communities such as Atherton, Cupertino, Los Altos, Menlo Park, Mountain View, Palo Alto, Portola Valley, Redwood City, San Jose, Sunnyvale, and Woodside.