Sacramento County divorce attorneys regularly confront property division disputes, particularly when determining whether marital assets acquired during marriage are considered community or separate property.
Whether the issue involves real estate, employment bonuses, retirement benefits, or investment accounts, California’s community property system requires careful tracing of funds and contributions to determine true ownership.
Understanding how California family courts, including those in Sacramento and Placer Counties, analyze these issues can help you protect your financial interests in a divorce.
When Is Property Presumed to Be Community?
Understanding Community Property Presumptions in Sacramento Divorce.
Under Family Code §760, property acquired during the marriage is presumed to be community property. This includes wages, investments, business interests, and personal property obtained between the date of marriage and the date of separation.
However, this presumption can be challenged. A spouse claiming that an asset is not part of the marital estate must provide clear evidence under California divorce laws, tracing it to a distinct source. The required standard of proof is a preponderance of the evidence (see Marriage of Ettefagh). This standard means the divorce court must find that the proposed tracing is more likely to be true than not.
To meet this burden, the spouse must present credible documentary evidence (such as bank records, wire transfers, escrow documents, brokerage statements, and testimony from financial experts). When separate property has been commingled with community funds, courts expect meticulous accounting. The tracing must establish that separate funds existed at the time of the transaction and were actually used, not just available in theory. Vague recollections, assumptions or estimates are not enough.
How Does Title Affect Property Characterization?
Role of Title in Sacramento Divorce Property Classification.
Property title alone doesn’t settle the issue. Under California community property rules (Family Code §2581), jointly titled marital assets acquired during marriage are generally presumed to be shared between spouses. This is true even if one spouse made the down payment with his or her separate property, unless there is a written agreement stating otherwise. For example, if a couple buys a home during marriage and takes title as “husband and wife” or as “joint tenants,” the law presumes the asset is community.
However, Family Code §2640 (which went into effect in 1994) allows a spouse to be reimbursed for separate property contributions to the acquisition of that community property, so long as there is no written waiver and the contribution can be traced.
Those of us practicing law before 1994 remember when separate property acquisitions to joint property were less straightforward (Marriage of Lucas and old Code of Civil Procedure sections 4800 and 4800.1 – but those should be left in the “old days” of hours spent in law libraries, yellow pads, dictation into cassette tapes, and before google was invented).
What Happens When Separate and Community Funds Are Commingled?
How to Prove Separate Property in a Divorce.
When separate property and community funds are mixed in an account or used together to purchase an asset during marriage, family courts initially presume the asset is community property. To rebut this, the spouse must trace the separate funds clearly.
“Direct tracing” follows specific transactions to show that a purchase was made using separate funds. “Exhaustion tracing” assumes that community funds were used first for family expenses, so if only separate funds remain when a purchase occurs, the asset is presumed separate.
In Marriage of Ciprari (2019), the husband’s accountant prepared a detailed 547-page “hybrid tracing” analysis to distinguish separate and community interests in over 20 investment accounts spanning nearly two decades. The court accepted this hybrid tracing approach, noting that tracing must be reasonable and well-supported, even if it doesn’t conform strictly to the direct or exhaustion tracing methods. The court explained that tracing methods should not be speculative and must treat community and separate property fairly.
How Do Family Courts Handle Real Estate Acquired During Marriage and Held in One Spouse’s Name?
What Happens to Property in One Spouse’s Name During California Divorce?
Title alone isn’t always the “final answer”. In Marriage of Ruelas (2007), a wife took title to a condo during marriage as a “single woman”, but the court found she did so for the benefit of her parents. Her brother loaned her for the down payment. Her parents had made all mortgage payments, and they took the mortgage tax deduction themselves. The trial court recognized a resulting trust and awarded ownership to the wife’s parents, not the community.
This case shows how Sacramento and Placer County family courts will examine substance over form. If one spouse acts as an intermediary or straw person for someone else, and the financial contributions came from outside the marital community, the community property presumption may be rebutted.
What About Bonuses and Deferred Compensation?
Characterizing Bonuses as Community vs. Separate Property.
Bonuses, stock options, and deferred compensation present challenging characterization questions. The answer boils down to when the right to receive the asset accrued, not just when it was paid.
In Marriage of Finby (2013), the court reviewed multiple employment bonuses. Even though payment was received after separation, the court found that the bonuses were partly community because they were tied to work and performance during marriage.
Similarly, in Marriage of Sivyer-Foley and Foley (2010), the court held that a law partner’s post-separation compensation was partially community because it was based on work performed before separation. The key issue was when the right to payment was earned.
The “time rule” is often used to apportion these types of assets. The formula divides the time the spouse worked during marriage by the total time required to earn the benefit. This produces a community property percentage, with the remainder deemed separate property.
What About Rights or Benefits That Are Not Yet Paid?
Contingent rights, like bonuses or lawsuit settlements, may have a community component if they are rooted in pre-separation effort. In Marriage of Biddle (1997), the court held that a spouse’s lawsuit, filed during marriage but resolved afterward, gave the other spouse a contingent interest in any recovery.
The same reasoning has been applied to published cases involving film royalties (Marriage of Zaentz), severance pay (Marriage of Horn), and even pension redeposits (Marriage of Lucero). The courts analyze whether the right to the asset arose during marriage and whether community efforts or earnings helped generate the value.
Courts have also considered whether the compensation is tied to future work by one spouse. In Marriage of Doherty, the court held that a mortgage subsidy started during marriage but tied to post-separation agreement (to work for Kodak in Hollywood) was the wife’s separate property.
FAQ: Overcoming the Community Property Presumption for Acquisitions During Marriage
Yes. If you can prove you used separate funds for the down payment or acquisition of community property after 1994 and did not waive your right to reimbursement in writing, Family Code §2640 gives you the right to reimbursement. [Acquisitions before January 1, 1994 are “a bit murkier”].
Without a clear tracing, expect that the funds will be presumed community. But courts have accepted hybrid tracing if well documented and otherwise fair, particularly when supported by expert testimony.
No. Bonuses are often partly community property if the spouse earned the right to them through efforts before the couple separated. Courts look at the timing of the work that earned the bonus, not just the date of payment.
Not necessarily. Title, source of funds, and the parties’ intent all factor into the court’s analysis. The presumption that property acquired during marriage is community property can be rebutted with sufficient evidence.
Conclusion – Rebutting Presumption of Community Property for Property Acquired During Marriage.
The distinction between jointly owned marital assets and individual holdings is not always straightforward, particularly when divorce asset classification involves commingled funds, deferred compensation, or when property is titled in misleading ways. Careful tracing (whether through direct records, expert analysis, or hybrid approaches) is essential to protect your interest.
Sacramento and Placer County family courts rely on established legal principles and evidence-based analysis to make fair decisions. Whether you seek reimbursement, separate property designation, or a share of valuable assets, working with knowledgeable legal counsel is critical.
Schedule a Consultation with Hughes Law Group
Need help with dividing community and separate property in a Sacramento or Placer County divorce? Hughes Law Group provides clear legal guidance on tracing and characterizing assets. Schedule a consultation today to protect your property rights and clarify your financial future.
