California is a community property state, which means that in a divorce, all marital property is divided equally. Separate property, however, is not subject to division in a divorce. Separate property is property that was owned by one spouse before the marriage. It can also be property that was inherited by one spouse during the marriage, or was received during the marriage as a gift from someone outside the marriage. Even if an asset starts out as separate property, however, does not mean that it will always stay separate property. It is possible for separate property to end up as marital property, and accordingly be subject to division in a divorce. The most straight forward way to maintain an asset’s nature as separate is to have a pre-nuptial agreement drafted by your attorney. Absent that, there are still some ways to make sure your separate property stays separate.
During marriage, it is common for spouses to combine assets owned before marriage and assets obtained during the marriage. This is called “commingling.” If you have a separate asset and commingle it with marital assets, then the separate property becomes marital property. For example, if you inherit a sum of money during the marriage, that is typically separate property. However, if you then place the money in a joint bank account that contains marital funds, it has become commingled, and is now likely marital property (barring a clear tracing).
Another way separate property may become community property is by one spouse providing active improvements to an asset. This is commonly seen when one spouse has a business that is separate property that the other spouse helps maintain, expand, grow, invest in, and add effort to the business. Improving the business does not always make the entire business asset part of the community; however, the increase in value attributable to the spouse’s efforts could become community property.
Finally, how you title your property can be very important. Deciding to place both spouse’s names on the deed to land or on a financial account can sometimes be sufficient to change the property from separate to community if a transmutation or commingling is apparent.
If you have questions about how to keep your separate assets from becoming community property, call us today at 619-800-0384 for a consultation. We can review your property and talk about your future.