Property Division, Separate Property

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Separate Property

Any property that you or your spouse acquired prior to your marriage will not be treated as community property in a California divorce. This property is considered as separate property. For example, you owned a house before marriage, and you continue to own it after your marriage and earn a rental income from it. In this case, both the house and the rental income it produces will be considered as your separate property.

Any gift or inheritance, which you may receive even after your marriage, will always be treated as a separate property. If you buy another property from the proceeds of your inheritance after marriage, it will also be exempt from community property provided you can establish proof. Once your divorce is finalized, any income you earn individually thereafter becomes your separate property. Therefore, the date of finalization of divorce is crucial.

Any student loans or other debts that you or your spouse may have incurred before marriage, and which have continued to be a liability after marriage, will be treated as separate property at the time of divorce. If you or your spouse acquired any property while you were both living separately, it will also be treated as separate property.

Comingled Property in California

If some of your separate property has become comingled during the course of marriage, you will need to resolve it legally with the assistance of a knowledgeable Orange County property division divorce attorney. Here is an example of comingled property: If you purchased a house prior to marriage, but after your marriage, you sold that property and used the proceeds to buy a marital home.

If you have a mortgage on this marital home, the resulting home equity will be treated as community property. In other words, the ownership of the home becomes comingled. Another example of comingled property could be a pension where you contributed prior to your marriage. This will make it a separate property. But if you continued to contribute to the plan after your marriage, those contributions would be treated as community property.

An experienced divorce lawyer in Orange County can help ensure that your property division in these situations meets all requirements of the law, while your rightful share in the property is fully protected.

Transmutation of Property in a Divorce

When the characterization of a property is altered during the course of marriage, it is said to have transmuted. Spouses in a marriage in California reserve their right to transmute:

  • Community property into separate property
  • Separate property into community property
  • One spouse’s separate property into the other spouse’s separate property

In addition to the transmutation of the property in these cases, it is also important to sign a written agreement that shows that both parties have agreed for the transmuting of the said property. In absence of this written agreement, the property may be treated in its original form at the time of divorce.

To protect your rights in this situation, your Orange County divorce lawyer should be able to use the tracing principle, whereby it can be precisely shown how the property changed from one form to another and that the transmutation has taken place.

Property through Gift or Inheritance

If you receive separate property after your marriage by way of gift or inheritance, it will continue to be treated as your separate property. Any assets you purchase from that property or any income you earn from it will also continue to be your separate property after marriage. But if such property has become comingled after marriage, your attorney will have to trace the assets at the time of divorce to determine exactly what percentage of the property should be treated as separate or community.

According to California law, while income earned from a separate property or an intrinsic increase in the value of a separate property will continue to be separate after marriage, any investment of time, labor and talent from the community into that property will be treated as community property.

What Happens if You Utilized Your Separate Property to Contribute to the Community?

If you used your separate property to contribute to community property during your marriage, you have a right to be reimbursed at the time of property division in a California divorce. Family Code 2640 deals with the reimbursement rights related to the use of separate property for acquiring a community property (such as making mortgage payments on your marital home).

To claim reimbursement for your separate property contributions at the time of divorce, your lawyer will have to track down the paper trail and documentation that proves that the contributions for a community asset came from a separate property.

Establishing this paper trail is known as tracing, which will be essential to show in court that you deserve to be reimbursed. It is notable that you can be reimbursed only for the actual amount of your contribution, and not for any appreciation value or interest on that original contribution amount.

What Happens if You Contributed Time, Labor and Talent to a Separate Property?

If your spouse owned a business prior to marriage, and post-marriage you made contributions to the running of that business, you may have a reimbursement right at the time of divorce. The courts in California in the past have considered two different approaches to determine whether a part of a separate property (business) can be treated as community property, and if yes, how much:

  • If the returns from the business during marriage to the community were higher than what you contributed to it, you may not have a reimbursement right because the community obtained a net benefit overall.
  • If the valuation of the business increased during the course of marriage because of the owner’s endeavor, he or she would have a right to receive a fair return on investment. But whatever remains after that becomes the rightful due of the community (that must be reimbursed at the time of property division).

In simple terms, if the value of a separate property business did not rise during the course of marriage, no reimbursement is due. Similarly, if the community benefitted more from the separate property business during marriage than the individual efforts a spouse, no reimbursement is due.

However, in a situation where your contributions to the separate property business during marriage were higher than its value, you have a reimbursement right from it beyond the business owner’s reasonable ROI.

What Happens when You Used Your Separate Property to Pay for Your Spouse’s Obligations?

If you utilized your separate property proceeds to pay for your ex-spouse’s obligations during the course of marriage, you may have a reimbursement right at the time of divorce. Here are a few examples of the payments you may make from your separate property to pay for your spouse’s:

  • Separate property debt or taxes
  • Child support or alimony from a previous relationship
  • Mortgage payments of separate property
  • Improvements or renovation of separate property
  • Maintenance expense of separate property
  • Education, coaching or training

Work with a Dedicated Orange County Divorce Lawyer

Reimbursement rights and other aspects of separate property are vital to consider in a property division agreement at the time of your divorce. The complexity of the asset and debt division may depend on several factors, and you need to evaluate your best options before you agree to a settlement. Make sure you have a competent Orange County family law attorney to represent you so that your financial interests are adequately safeguarded.

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