During a divorce, couples will divide their property based on differing rules depending on whether the property is shared or separate. Understanding what constitutes separate property can make a significant difference in this property division process.
California is a community property state, which means most assets acquired during the marriage are subject to equal division. However, not all property falls under this rule. Separate property is the exception.
Defining separate property
Separate property includes any property that one spouse brought into the marriage, as well as any gifts or inheritances received during the marriage. Income generated from separate property may also remain separate also remains separate as long as it is not commingled with community property. For example, if one spouse owns a rental property before the marriage, the rental income typically remains separate.
Understanding the effects of commingling
Commingling can make property division more complicated. Commingling occurs when separate property and community property become mixed together. This can happen with joint bank accounts, shared investments or improvements made to a property using shared funds. When this occurs, it may become difficult to determine which portion of the asset is separate and which is community.
Considering separate property for business owners
A professional practice or closely held business can present another layer of complexity. If one spouse owns a business or professional practice, it may be necessary to determine the value of that business during the divorce. This process can become intricate, especially if the business has grown or increased in value during the marriage. Even if only one spouse owns the business, the other spouse’s contributions or community assets can alter some or all of the business into shared property.
No matter how simple one’s divorce may seem, it is important to pay careful attention to separate property rules. Properly distinguishing between separate and community property can impact the overall financial outcome of a divorce. Couples who accurately track the sources of their assets may help avoid disputes and ensure a fair division of property.
