Yes, California is one of the handful of western states that follow community property rules. The majority of states follow equitable distribution principles, but California is not one of them. Under community property rules, a couple’s property should be divided equally. Learn more about how California’s community property rules will impact your divorce.
All property that a couple acquires during marriage is considered marital, or community property in California. A couple’s community property must be divided equally if there is no written agreement (such as a prenuptial agreement) requiring a particular division of property. A judge will subtract a couple’s debts from their community property assets to determine the net community estate. In most cases, each spouse will receive one-half of the net community estate.
California community property laws don’t require an "in kind" division of community property, which would mean you would have to divide each physical object. Community property division simply requires that the net value of the assets received by each spouse is equal—a 50/50 split of the value of the estate.
In some cases, one spouse is awarded the family residence, while the other spouse receives the family business and investment real estate. What matters under community property laws is that each spouse gets assets that are equivalent in value. If the total net value of the assets received by each spouse is equal, such a division is proper.
Keep in mind that only community, not separate property, is divided in a divorce. Separate property that a spouse owned prior to marriage or received through gift or inheritance belongs only to that spouse. Separate property can lose its separate character if its mixed or comingled with community property. For example, if a spouse owned a rental home prior to marriage but used marital funds to remodel, furnish, and maintain the home, it may be considered community property in a divorce.
Under California’s community property laws, any interest or income accumulated in a 401(k), pension, military pension plan, or profit-sharing plan during the marriage is community property. Retirement accounts can be tricky to divide because contributions made prior to marriage are one spouse’s separate property and won’t be divided in a divorce.
Generally, pension plans are divided in one of two ways: a "reservation of jurisdiction," or a "cash-out."
This is the most common way divorcing couples handle pension plans. Under reservation of jurisdiction, the court orders that when the employed spouse retires, the other spouse will receive a percentage of each pension check. This percentage is calculated by dividing the years when the spouses lived together as husband and wife by the total number of years that the employed spouse has been participating in the pension plan. The result of that division is the community property percentage of the pension plan.
For example, if the husband had 20 years of contributions into a pension plan, with 10 of those years coinciding with the marriage, the community property share of his pension plan would be 50% (10 divided by 20). Thus, the wife would be entitled to 25% of the husband's pension checks (half of 50%). Under a reservation of jurisdiction, the non-employee spouse can elect to receive his or her share of the employee spouse's pension benefits at the earliest time that the employed spouse could retire. This means that if the employed spouse chooses not to retire at the earliest opportunity, that spouse will have to pay the other spouse what the non-employee spouse would have received if the employed spouse had retired.
In this example, if the husband is eligible for "early retirement" at age 55, but he chooses not to retire at that time, his ex-wife can demand that he pay her the amount of money that she would have received if had retired when eligible. However, if the wife makes such an election, she does not receive any cost of living increases after that date.
The Federal Retirement Equity Act of 1984 created what is known as the "Qualified Domestic Relations Order," or "QDRO" (pronounced "quadro"). Where the Court makes orders concerning a spouse's retirement plan and the order is prepared in the correct form, the Federal law requires the employer to comply with the terms of the order. QDROs are used to divide 401(k)s and other retirement benefits. The process of obtaining a QDRO can be tricky, so it’s best to contact an attorney for help rather than trying to prepare a QDRO on your own. To learn more about QDROs, see, QDROs in California: Dividing Retirement Benefits.
The other method of dealing with a pension involves obtaining actuarial evaluation or a “cash-out.” An actuary is an expert who deals with statistical and financial evaluations of insurance policies, annuities, and pensions. By reviewing the plan description as well as the accumulations on the account of the employed spouse, the actuary can determine the present value of the community share of the pension plan. With a cash-out, the employed spouse receives the pension plan in its entirety, and the other spouse receives other community property assets of equivalent value.
Like any other asset, a business or professional practice must be considered in the valuation and division of community property. To the extent that a business or practice has been developed during the marriage, there is a community property interest that must be dealt with in the dissolution. The most difficult and time-consuming aspect of determining the value of a business or professional practice is in evaluation of goodwill. “Goodwill” is the intangible value that most businesses have, which is based on the expectation of future business, based on established name or reputation. If the business or practice is operated by one of the spouses, it has a goodwill value even if it could not be sold on the open market.
A spouse who has supported the other spouse in a business venture might wonder what community property rights he or she has in that business. Regardless of the amount of time or money poured by one spouse into the other’s business, a business sown and grown during a couple’s marriage will be considered California community property. Business valuation is a detailed process. In rare cases, a judge may accept a couple’s valuation of a business. More often, a certified public accountant or business appraisers will determine the value of a business or professional practice. The accountant or appraiser who is hired reviews the books and records of the business or practice and prepares a written report.
In divorces with kids, it is common for the primary custodial parent (parent with primary physical custody) to be allowed to live in the marital home with the children until the divorce is finalized. During that period of time, the spouse who lives in the home is usually required to make all mortgage, property tax, and homeowner insurance payments when due, although the other spouse may be required to make those payments if there’s a major difference in the spouses’ incomes and resources.
In some cases, a judge may award the marital home to the custodial parent permanently and offset that award by granting the other spouse a larger share of the marital estate. In other situations where a couple can no longer afford the marital home or there aren’t minor kids, a judge will typically order the couple to list and sell the home and split any proceeds. See, "Who Gets the House in a California Divorce?" for in-depth information. See Cal. Fam. Code § 2337 (2019).
In California, where one spouse has earned a college degree or a professional license during the marriage, the other spouse has community property rights and is entitled to be reimbursed for the costs of acquiring the degree or license. These costs are normally limited to such things as tuition, fees, and books. Unlike in other states, the law in California does not give the other spouse any right to a percentage of the enhanced earning ability of the spouse who acquired the degree or license.
If you have questions, speak to an experienced family law attorney in your area.