Do I Need to Trace Funds Used to Buy Marital Property in California?
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Community property refers to the system in some states for dividing a married couple's property in a divorce or upon the death of one spouse. In this system, everything a husband and wife acquire once they are married is owned equally (fifty-fifty) by both of them, regardless of who provided the money to purchase the asset or whose name the asset is held in, with the exception of inheritances, specific gifts to one of the spouses, and property and profits clearly traceable to property owned before marriage, all of which is separate property.
Community property recognizes the equal contribution of both parties to the marriage even though one;or the other may earn more income through employment. By agreement or action the married couple can turn (transmute) separate property into community property, including by commingling community and separate funds in one account.
The courts in California will divide the community property of the parties equally after setting aside to each spouse that spouse's separate property. Community property is presumed to be all property acquired by the parties during the marriage and held in joint form. This presumption may be rebutted by a clear statement in the title by which property is acquired that the property is separate and not community property or by proof that the parties have a written agreement that the property is separate property. In cases where the asset is claimed to be converted to marital property by commingling, in order to prove the separate nature of the property, the other spouse may attempt to trace the funds used to separate property, such as when funds from a spouse's separate property home owned before marriage are used to purchase a joint home after marriage. In such cases, having documentation regarding the source of funding is used to trace the separate funds used to purchase the marital asset.
Generally, separate property acquired before the marriage or by gift or inheritance during the marriage may be excluded from the marital estate if neither the property nor its income has been used for the common benefit of the parties during their marriage. Where the parties regularly use property acquired by one party before marriage for the common benefit of the parties, it is more likely to be available for consideration in dividing property. The frequency of use may be considered by the court in making the decision.
The Court makes a distinction between marital assets and separate assets. Marital assets are assets acquired during the marriage. Separate assets are asset which one party acquired prior to a marriage and maintained as separate property, property inherited during the marriage and property received as a gift by one party during the marriage. A party can turn a separate asset into marital asset by commingling the asset. Examples include: adding a new spouse's name to a bank account, car title, or deed to the home as joint tenants with right of survivorship.
Gifts between spouses pose problems. Many courts presume gifts from one spouse to another to remain marital, rather than separate, property. Some courts allow this presumption to be rebutted with clear evidence that the gift was intended to be the property only of the recipient. Courts can also look at factors such as the intention of the giver, along with whether the gift is subsequently used by one or both spouses.
A postnuptial agreement is a written contract created by two people after they are married. The agreement typically lists all of the couple's property, including assets, liabilities, income and expectations of gifts and inheritances, as well as their post-marital debts. A postnuptial agreement specifies how post-marital property, as well as the appreciation, gains, income, rentals, dividends and proceeds of such property, should be distributed in the event of death, separation or divorce, rather than protecting assets from creditor claims against debts of a spouse. It will generally be upheld by the court if it was entered into knowingly, freely, and fairly. It may be invalidated if dishonesty, fraud, coercion, or duress is involved. The spouses should disclose their assets and debts in writing and have the opportunity to consult an independent attorney.