Sacramento Property Division Attorney

Community Property - Division of Marital Assets and Debts

Facing a Divorce in Sacramento or Placer County? We're Here to Help You Protect What Matters.

In Sacramento and Placer County divorces, the division of community property is governed by the California Family Code. While the statutory rules aim to simplify the process, the practical application is often anything but simple. Complex financial arrangements, disputed valuations, and the characterization of property as community or separate frequently require legal guidance from a Sacramento divorce attorney experienced in property division.

Table of Contents

    Understanding the Disclosure Process in Your Divorce

    One of the first things we help our clients with at Hughes Law Group is preparing the Preliminary Declarations of Disclosure, which are required in every California divorce. These documents include the Income & Expense Declaration and the Schedule of Assets and Debts, and they must be filled out by both spouses.

    We provide our clients with worksheets to help them complete these forms shortly after filing the divorce petition or submitting a response.  Starting early helps streamline the process, increasing the likelihood of reaching a fair settlement or progressing through court proceedings without unnecessary delays.

    These disclosures are more than just paperwork. They require you to list every asset and debt you have, whether it's community property (shared) or separate (individual). Because you're signing under penalty of perjury, accuracy and honesty are non-negotiable.

    We guide our clients through this process and, when needed, bring in trusted financial professionals like CPAs to ensure everything is properly disclosed.

    What is Characterization of Property?

    Characterization of property is the process of identifying whether an asset or obligation is community, quasi-community, or separate property. This step is critical to understanding the rights and responsibilities of each party and is the first stage in dividing property during a divorce. Community Property belongs equally to both spouses, even if it’s only in one spouse’s name.

    What is Community Property?

    Community property refers to all real and personal property acquired during a marriage by a spouse living in California (Fam. Code §760). This includes assets located outside California, which are treated the same under California’s community property laws.

    Community Property Presumption from Acquisition During Marriage:

    In California, property acquired during marriage by a married person (or domestic partner) is presumed to be community property.  This presumption can be rebutted with sufficient evidence.  Since this is not a title-based presumption, a wide range of credible evidence may be used to disprove it, including:

    • Tracing the asset to a separate property source,
    • Proving there was an agreement about ownership, or
    • Showing the asset was a gift.

    To overcome the presumption, the opposing party must meet the preponderance of evidence standard.

    Community Property Presumption for Property Acquired in Joint Form During Marriage:

    Under Family Code §2581, property acquired by spouses during marriage in joint form is presumed to be community property, including:

    • Property held as tenants in common,
    • Joint tenancy or tenancy by the entirety, or
    • Community property.

    This presumption applies even if separate property was retitled to joint ownership during marriage - for example, to meet refinancing requirements.

    To overcome this legal presumption, the party must provide either:

    • A clear statement in the deed or title document specifying the property is separate, or
    • A written agreement between the spouses confirming the property is separate.

    Tracing, verbal agreements, or implied arrangements cannot overcome the community property presumption.

    What is Quasi-Community Property?

    This issue most commonly arises when the property is located in another state and the property would have been treated as community property if it was in California.

    “Quasi-community property” includes real or personal property acquired in the following ways (Fam. Code §125):

    • By either spouse while living in another state, as long as it would have been considered community property if they had been living in California at the time.
    • By exchanging property that would have been classified as community property if acquired in California.

    California can only apply its quasi-community property laws when:

    1. Both spouses have moved to California, and
    2. They file for divorce or seek a legal change to their marital status while living in California.

    If one spouse doesn’t move to California, the local Sacramento or Roseville Family Court generally can’t adjudicate out-of-state property that was classified as separate property in another state.

    What is Separate Property?

    In California, separate property includes:

    Spouses have no claim to each other’s separate property unless an applicable provision of law provides otherwise (Fam. Code §752).

    Income received after the date of separation may be community property or separate property depending on when the funds were earned. The focus is on when the services were performed rather than when the payment was received.

    For more information, see our article, “How does California define “separate property” in a divorce?”

    Understanding the Date of Separation in Divorce and How it Affects Property Division

    The date of separation is a key concept in California divorce proceedings. It refers to the point when spouses stop living together as a couple and at least one of them clearly intends to end the marriage (demonstrated both by their words and their actions).

    Why is this date important? Because it legally separates community property from separate property. Earnings, retirement contributions, vehicles, and other assets acquired after this date are no longer considered community property. Likewise, debts incurred after separation (such as one spouse using a jointly held credit card) are usually the responsibility of the person who incurred them. Identifying and proving the date of separation can significantly impact how property and debts are divided.

    For more information, see our article, “How does a California Court determine the ‘Date of Separation’ in a divorce case?”

    Characterizing Property and Preliminary Issues

    Your family law attorney’s analysis of your case involves determining the character of property and discussing whether any outside influences may apply to such characterization.  The following are questions you should consider and immediately inform your attorney, if any of these apply or may apply to your case:

    • Whether the parties entered into a premarital agreement
    • Whether the parties entered into post-nuptial or community property transmutation agreement after the date of marriage
    • How title is held
    • Whether either party has a right to reimbursement of separate property
    • Whether either party deeded property to the other during marriage
    • Whether a breach of fiduciary duty claim exists resulting from transactions between the parties during marriage
    • Whether community property was contributed to acquire separate property, improve separate property or pay down separate mortgages
    • Whether separate property was contributed to acquire community property, improve community property or pay down a community mortgage.

    What Marital Property is Considered Upon Divorce?

    Our Sacramento property division attorneys provide comprehensive assistance with valuation and distribution of marital assets. We may consult valuation professionals such as real estate appraisers, business valuation experts, or specialists in art, antiques, or other personal property to ensure accuracy in dividing community property such as:

    • Residential and commercial real estate, including family homes and rental properties.
    • Investment assets, including stocks, bonds, and bank accounts.
    • Business interests, including closely held businesses and S-Corporations.
    • Investment opportunities.
    • Pensions (CalPers, STRS, SCERS, etc.)
    • Deferred compensation (401(k), 403(b), IRA, SEP-IRA, stock options, unpaid bonuses, unpaid vacation, etc.)
    • Collectible items, including antiques, art, and coin collections.
    • Insurance policies and insurance proceeds.
    • Vehicles (Cars, Boats, RV’s).
    • Personal property, including furniture and electronics.

    Importance of Proper Valuation. Use of Appropriate Experts

    Accurately valuing community, separate, or mixed property is critical during divorce. We use tools like real estate appraisals, expert opinions, and financial records to ensure fairness in dividing assets. Our Sacramento property division attorneys help you approach this process strategically, whether you're assessing your home, retirement account, or a family business.

    Experts, such as real estate appraisers or specialized appraisers for items like jewelry and artwork, are invaluable in cases involving substantial estates. For example, if a Sacramento home increased in value from $900,000 at the date of separation to $1,000,000 at trial, the court will generally use the trial date value, unless a different valuation date was timely requested and approved.

    Consulting an experienced divorce attorney early in the process can ensure the strategic handling of complex property issues.

    Identifying Separate Property When Property is Commingled

    One of the most challenging aspects of property division during divorce is determining how to handle property with mixed character. Mixed character refers to property that is partly separate and partly community in nature, giving the non-owning spouse a potential interest. Common examples include real estate purchased by one spouse before marriage, when mortgage payments or improvements on separate property assets were funded with community property funds, when separate property investment accounts were commingled with additional community property deposits, and businesses brought into the marriage that were further developed during the marital period.

    In cases involving real property, courts often apply the Moore-Marsden formula to value the community's interest. This method accounts for payments made toward the mortgage principal and prorates the appreciation of separate property assets. If you're wondering who gets the house in a Sacramento divorce, California courts evaluate equity, contributions, and whether the home is community or has significant separate property interests.

    When dealing with separate property businesses, courts generally rely on accounting methods announced the Pereira or Van Camp cases.  The Pereira approach focuses on assigning a reasonable return on the separate property investment leaving the remainder of growth during the marriage for the community.  The Van Camp formula values the owner spouse’s contributions based on a reasonable salary.  If the employee spouse was paid less than that amount from the business during the marriage, the retained earnings are considered the community’s investment in the business.  Business owners going through divorce often ask, is my business separate property in California? Our firm works with local Sacramento and Placer County forensic valuation CPA’s that understand the nuances of Pereira and Van Camp analysis.

    For more information about tracing separate property out of community assets, see our article, “Tracing Commingled Assets. How to Unmix your Separate Property Back Out of the Community Estate.”

    Misappropriated or Hidden Property: When It Matters

    If one spouse hides, spends, or otherwise misuses community property without the other’s knowledge or consent, the court can order an unequal division to reimburse the aggrieved party under Family Code §2602.  The family law court can divide property unequally to remedy willful misuse or concealment, including awarding more assets or providing financial credits (such as reimbursement offsets) to the harmed spouse.

    But there’s a key difference between wrongdoing and a simple mistake. If a spouse forgets to file taxes or drops the ball on a lawsuit, that’s usually considered negligence, not intentional misappropriation. Negligence alone doesn't justify an unequal division of property.

    Special Community Property Rules for Personal Injury Proceeds

    If one spouse receives a personal injury settlement during the marriage, those funds aren’t always divided like other community assets. California Family Code §2603 sets out special rules that usually give most of the proceeds to the injured spouse, but there are exceptions.

    Here’s how family law courts evaluate and divide personal injury proceeds:

    1. Determine the Timing of the Injury
      The court first identifies when the injury occurred. If the injury took place during the marriage (even if the settlement was received after separation) the proceeds are treated as community property, subject to these specific rules.
    2. Primary Allocation to the Injured Spouse
      In most cases, the court must award the personal injury proceeds to the injured spouse during property division, unless a specific exception applies.
    3. Commingling Considerations
      If the proceeds have been mixed with other community assets to the point they can’t be distinguished, the court may divide them equally as general community property.
    4. Economic Fairness
      The court can consider the financial needs of both parties. If awarding the full amount to the injured spouse would result in unjust hardship, the court may allocate a portion to the other spouse.
    5. Minimum Allocation Requirement
      Even when fairness calls for shared distribution, at least 50% of the personal injury proceeds must go to the injured spouse.

    Community Property Interests in Retirement Accounts, Pensions, and Stock Options

    How Community Interests in a Deferred Compensation Account are Calculated:

    The community interest in deferred compensation accounts (such as IRA’s, 457, and 401(k) accounts) is commonly calculated by first identifying the contributions made during the marriage. Then, a historical rate of investment gain or loss is applied to those contributions. The remaining balance, if any, is considered the employee spouse’s separate property.

    How Divorce Courts Divide Pensions in California:

    A pension is steady income paid to someone after they retire, usually as a reward for years of service. It’s typically based on the employee’s length of service and salary history.  A pension earned during marriage is community property.  The community interest in a pension is usually determined based on the “time rule”. The formula is based on time worked during marriage vs. total time worked.

    Under the ‘time rule,’ the community property interest is calculated by dividing the time the employee worked during the marriage by the total time they worked to earn the pension, then multiplying that fraction by the pension benefit.

    For example, if the employee worked 25 years for an employer and ten years of that time s/he was married, the community interest is 10/25 of the current pension benefit.

    Before the judgment is granted, it is generally advisable to file a joinder motion. This ensures that the plan administrator becomes a party to the family law case, thereby allowing the court to exercise jurisdiction over the benefits.  To implement a non-military pension division, the parties must obtain a Qualified Domestic Relations Order (QDRO), which provides instructions to the plan administrator for distributing the benefits appropriately.

    Division of Military Pensions in California Divorce:

    Military pensions (not currently in pay status) are valued using the ‘High-3’ formula (the average of the highest 36 months of basic pay), while the community interest portion is typically determined using the ‘time rule’.  Military pensions are not divided by Qualified Domestic Relations Order (QDRO) but rather by Military Retired Pay Division Order, Military Division Order (MDO) or Court Order Acceptable for Processing (COAP).  Because these orders have so many specific format and content requirements, we work with an outside expert when drafting them for our clients.

    The Defense Finance and Accounting Service (DFAS) is the agency that processes these orders and pays the former spouse their share directly, but only if the 10/10 rule is met (10 years of marriage overlapping with 10 years of military service).  If the 10/10 rule isn’t met, the non-military spouse still gets their court-awarded share of the military retirement. However, the military spouse must make those payments directly, similar to a spousal support obligation.

    How California Courts Divide Stock Options and RSUs

    Dividing stock options and restricted stock units (RSUs) in a divorce isn’t always straightforward. These types of compensation may be granted before, during, or after the marriage, and they’re often awarded on irregular schedules tied to company performance.

    California courts typically use one of two formulas depending on the purpose of the stock or RSU grant:

    1. Hug Formula (from Marriage of Hug, 1984)
      This formula is used when the stock was meant to reward work already done during the marriage. It looks at how long the person worked at the company before the couple separated.

    Formula:
    Community interest = (Months worked from start of job to separation) ÷ (Months from start of job to when the stock is usable) × Total shares

    1. Nelson Formula (from Marriage of Nelson, 1986)
      If the stock was given to encourage the person to keep working in the future (or stay with the company), this formula applies. It starts counting from when the stock was granted, not when the person started the job.

    Formula:
    Community interest = (Months from stock grant to separation) ÷ (Months from grant to vesting or when the stock can be used) × Total shares

    Both formulas help determine how much of the stock is considered community property (the couple together) versus separate property.  Judges can choose the most appropriate method based on the purpose of the stock award (or even create a custom one if appropriate).

    Ready to Protect Your Property in Divorce? Speak with a Sacramento and Placer County Community Property Attorney

    Have questions about how your assets will be valued or divided in divorce? Or whether a particular asset is considered community or separate property? Schedule a confidential consultation with an experienced property division attorney serving Sacramento and Placer  County communities.

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