Complex Property Division

Before assets are divided, it must first be determined which assets are community assets and which are separate assets. In order to determine if an asset is community, various factors are considered:

• Was the asset acquired before marriage, during marriage, or after separation?
• What funds were used to acquire the asset?
• Was the asset leveraged, financed, or refinanced?
• Was the asset placed in a trust?
• How was the asset originally titled, and did any title changes occur during the marriage?
• Did either party contribute their “sweat equity” to create or improve the asset?
• Did the spouses ever agree that the asset was to be treated one way or the other (either as community property or separate property), and if so, did they reduce this agreement to writing?

If an asset is not found to be community property, then it is, by definition, the separate property of the spouse who legally owns it. If an asset is found to be community property, then the asset is equally owned by both spouses and must be divided in the divorce process.

If one spouse believes that they are entitled to more than half of a marital asset, that spouse must use “separate property tracing” and “reimbursement” principles to support their claim. As an example, consider this not-uncommon scenario:

Spouse “Pat” had separate property stock in a stock account prior to the marriage…but during a 20-year marriage, Pat closed their original stock account, opened a new stock account, sold the original stock that Pat purchased before the marriage, then purchased new stock with the sales proceeds from the premarital stock, then eventually sold the stock and used the proceeds of the sale to purchase a marital home that was placed in a family trust, and then finally paid capital gains taxes out of the new stock account.

• Is the martial house community property, separate property, or some mix of both?
• If the house is community property, does the Husband have separate property reimbursement rights?
• If so, what records does the Husband need to have to prove his separate property rights?
• Is the capital gains tax debt a community debt, separate debt, or some mix of both?
• Is the remaining balance of the stock account community property, separate property, or a mix of both?

Or consider this slightly more common situation:

Spouse “Alex” owned a home as separate property prior to the marriage…but during the marriage, Alex and their spouse moved into that home; then Alex subsequently refinanced the home, at which time both spouses’ names were placed on the title to the home.

Is the house now community property, or is it still Alex’s separate property, or is it a mix of both? To support their claim for a separate property interest in the house, Alex would have to prepare a thorough analysis of all of the facts and documents (including original purchase documents, original title documents, refinance loan documents, refinance appraisals, refinance title documents, trust documents, bank records, and escrow documents) to support their claim for a separate property right of reimbursement. Conversely, Alex’s spouse will focus on the fact that their name was added to the title, that the house value increased during the marriage, and that the community’s joint credit was used to obtain the loan on the home.

Often, these complicated questions require expert analysis. Generally speaking, if an expert can provide an opinion to the Court that will assist the Court in its analysis of the proper legal ownership of an asset, then your family law attorney should add that expert to the tracing team. Ford Family Law attorneys work with respected, knowledgeable, and experienced forensic accountants and other experts who understand California’s complex community property reimbursement and tracing principles and present persuasive analyses to the Court.