California is a community property state, but you may not know what this means for your marriage or how you can make it work best for you. It’s important to understand the difference between community property and separate property so that you get clarity heading into your marriage and have proper expectations in the event of an unexpected divorce.
How Does California Define Property?
Let’s begin with understanding what’s at stake here. Generally speaking, anything that can be purchased or sold, such as real estate, automobiles, furnishings, clothes, jewelry, and so on can be referred to as “property.” Property can also refer to anything of worth, including bank accounts, retirement plans, investments, or businesses.
All property is divided up in a divorce based on what is found to be community or separate property. This is either decided by a judge enforcing California’s default laws or an amendment to these laws dictated by a prenup.
Separate Property vs Community Property
When it comes to defining property in a marriage, there are two types of property: community and separate. Understanding the differences is key to making them work to empower your marriage.
How is Community Property Defined in California?
When you get married, you and your spouse legally become one entity called a “community.” So even if you acquire property during the marriage on your own, it belongs to both of you equally. Let’s say you buy a car as a married person. This car presumptively belongs to the community, meaning you and your spouse own it 50/50 — even if it’s just your name on the registration and pink slip.
Your personal time, skills, service, and effort throughout the marriage are all shared by the community. As a result, any time and effort you put into developing your company, improving real estate, or making investments may lead to the community gaining an interest in that asset.
How is Separate Property Defined in California?
Separate property is defined as anything that was acquired before or after the marriage. The paintings that you owned before tying the knot still belong to you, not the community. Gifts and inheritances given to one individual, before, during, or after marriage, are also considered separate property. Equally as important, property acquired or produced after a legal separation is labeled as separate property as well.
However, most people overlook the many instances in which the community can gain an interest in your separate property assets or income during your marriage, even if you had no intention of that happening. For example, if you’re using your personal time, skill, and effort during your marriage to develop your company or improve real estate, the community can gain an interest in it even if you technically owned the asset prior to your marriage.
Utilizing a Prenup to Achieve Your Marriage Goals
Heading into marriage, you can use a prenuptial agreement to declare what is separate and community property before, during, and after marriage. Doing so can help you achieve the following:
- Establish autonomy in your marriage while still financially growing together
- Set up bank accounts clearly defined as separate or community property
- Reduce or eliminate the stress of dividing up property in the case of a divorce
Maintaining autonomy and independence is a key way to strengthen your marriage. By doing so, you and your spouse can grow as individuals and as a couple. From a financial standpoint, you can create (or keep) your individual bank account(s) for personal spending while creating a joint bank account for combined purchases, savings, and investments.
For example, there are probably some things you’d like to buy or pay for using your own separate money, like gifts for your spouse, or gifts for yourself. (As my good friend and poet Melody Godfred preaches, self-love is key during your marriage!). On the other hand, you and your partner may want to create and contribute to a joint account to save up for joint vacations, big purchases like a home, or children’s expenses.
Look, divorce is never easy, but it gets incredibly complicated if separate and community property were commingled carelessly. Taking the initiative to define property in a prenup enables you and your partner to set the parameters of property ownership, potentially reducing the back and forth and need for a complex divorce.
Take the time to have deep conversations about money and property before you get married by using this guide. You’ll jumpstart the process of creating a customized prenup with your attorney empowering you and your spouse to enjoy a successful, long-term marriage. Don’t hesitate to reach out to me with any questions regarding separate property, community property, or prenups — I’d be happy to help.