One of the most important aspects of divorce is property division. Spouses have joint rights to certain assets as well as joint responsibility for certain debts. As such, marital assets and debts obligations must be identified and valued prior to dividing them. In California, this comes down to deciding whether or not an asset or debt is community property.

Community property refers to assets and debts acquired or accrued during a marriage, which must be divided equally between the spouses upon divorce. Assets acquired by either spouse before marriage — or by means of gift or inheritance even during the marriage — are usually considered separate property and so are kept by the recipient. However, separate property can become community property in certain circumstances. There are two common ways: commingling and transmutation.

Commingling occurs, for example, when a spouse transfers funds from an individual bank account into a joint account, where they remain and are used by both spouses. Or the spouses might use separate funds for joint purposes, such as mortgage or car payments. Commingled funds are presumed to be community property, although a spouse may overcome this presumption with evidence that the intent was for the funds to remain separate and that they were treated as such. This requires tracing the original funds and their usage with documentation.

Transmutation means changing separate property to community property by agreement. The spouse who surrenders the right of exclusive ownership must expressly provide an acknowledgement of the asset’s reclassification. That spouse must have waived their right to reimbursement for the asset transferred. The agreement cannot be the result of fraud or undue influence. All transmuted property is treated as community property.

In some instances, an asset becomes partial community property. This can happen when one spouse enters the marriage owning an asset and the other spouse contributes significantly to enhancing the value of the asset. For example, one spouse owned a business prior to marriage and the other spouse invested capital in the business or worked at the business for less than a normal wage. The court would likely treat the business as partially separate and partially community property.

Retirement accounts and pension plans are assets that can also be partial community property. Although one spouse may own the account or plan prior to marriage, any funds contributed during the marriage are subject to division.

Once property is identified as community property in whole or in part, it must be valued in order to be divided equally. This is often a complicated process. Assets that are not reducible to a market price usually require expert appraisals. Further, valuation is often subjective and appraisals may vary. An experienced divorce attorney can take the steps necessary to assure accurate valuations.

Favaro, Lavezzo, Gill, Caretti & Heppell, PC, with offices in Fairfield and Vallejo, California, represents divorce litigants throughout the North Bay area. Contact us online or call 707-674-6057 for a free initial consultation.