Separate Property: How to Handle Increases in Value During Marriage

Separate Property: How to Handle Increases in Value During Marriage

Separate property is property that the law recognizes as owned by only one spouse in a marriage. Community property is presumed property obtained during marriage. Those short definitions make property issues sound simple, but they often are not. If you and your spouse were married for any length of time, there’s a good possibility any separate property brought into the marriage may have increased in value.

So, how does such an increase in value affect a divorce settlement?

That depends on the asset and how the asset appreciated in value.

Business Assets

Sometimes one spouse starts a business before marrying. The business is that spouse’s separate property. If the marriage ends, isn’t the business still considered separate property? Not always.

For example, Jay owned a business prior to marrying Jill. He brought the business into the marriage as separate property. However, Jill spent many hours helping him build his mom-and-pop store into a much larger retail operation. When they decide to divorce after 12 years of marriage, what right does Jill have to Jay’s business assets?

Community labor is worth something. Both Jay and Jill’s efforts, during marriage, played a big part in the store’s success. Jill probably is not entitled to own part of the business. However, she is entitled to an interest in the business because the separate property increased in value due to Jay and Jill’s efforts during marriage.

Acquired Assets

Property purchased during a marriage is generally considered to be community property. However, gifts and inheritances that one spouse receives are the separate property of that spouse. It’s possible, though that a spouse could receive an inheritance that increases in value. The increase may become community property.

Gloria owned a house prior to marriage. Three years after marriage to Bob, Gloria put Bob on the deed. When Gloria and Bob divorce, Bob wants half the equity in the house. Bob may have a community interest in the home.

Calculating the Community Increase

Once it’s determined that the increased value of separate property is community property, how is the increase calculated?

Divorce courts and attorneys may use formulas based on prior divorce cases to figure out property division.

  • Moore/Marsden calculations are sometimes used to calculate how much of a home’s value became community property during a marriage. This formula uses separate property appreciation amounts, total principal reduction, and comparisons between purchase price and current value.
  • Pereira accounting may be used to figure out how community funds and community labor enhanced the value of separate property. It’s typically used when the business appreciates due to the efforts of the spouse who doesn’t own the business.
  • Van Camp accounting typically is used when a business value increases due to the business or to economic factors.

Pereira and Van Camp are two family law cases in which the courts had to decide division of property that increased in value.

Learn More About Separate and Community Property

The attorneys at the Law Offices of Judy L. Burger are experienced at all phases of divorce proceedings. Call us at 415-293-8314 to schedule a private appointment or visit our website. We maintain offices in Marin County, San Francisco, Santa Barbara, Ventura/Oxnard, San Jose, Gold River (Sacramento), and surrounding communities. Our Beverly Hills office will be opening soon.

Insurance Settlement and Your Divorce

Insurance Settlements and Your Divorce

Divorce can be complex. Untangling finances, figuring out what to do for the children, and determining what’s community property can take time. Adding the complication of an insurance settlement to a divorce certainly doesn’t help.

The Law on Personal Injury Settlements

California law addresses insurance settlements in California Family Code 780 and 2603. While some of the language is vague, the law does address whether settlements are separate or community property.

Injuries During Marriage.

When a personal injury cause of action – the event that led to the injury – occurs during a marriage, then the insurance settlement for those injuries is considered community property. As such, the settlement is split 50-50 between the parties, even if only one party was injured.

Sometimes parties divorce after the accident, but before the insurance settlement is received. The community property/separate property determination is made based on when the injury occurred, not when the settlement is received.

Injuries Incurred Outside the Marriage.

If an injury occurred before parties were married, or after they start living separately, then the insurance settlement belongs only to the injured party. The term “living separately” does not necessarily mean “date of separation.”

For example, an unmarried person is seriously injured in a car accident, then later marries. The cause of action for the personal injury occurred before the marriage. Any insurance settlement is the property of the injured party only.

Reimbursement for Expenses

One exception to the separate property case noted above involves reimbursement for expenses paid by the non-injured spouse. Family Code 781(b) states that expenses paid by the non-injured person from separate property or community property may be reimbursed.

For example, if one spouse may be injured in an accident before the marriage. After the marriage takes place, the uninjured spouse pays expenses that relate to the injuries suffered in the accident. The uninjured spouse may be able to recover at least part of their expenses from the insurance settlement received by the injured spouse.

Learn More About Insurance Settlements and Your Divorce.

Judy Burger is a California Certified Family Law Specialist, and founder of the Law Offices of Judy L. Burger. Please call our offices at 415-293-8314 to set up an appointment with one of our attorneys. We assist clients along the Northern to Central California Coast.
Keeping Property Separate During a Marriage

Keeping Property Separate During a Marriage

Marriage is the ultimate partnership. But it’s more than just two people in love forming a union of two souls. Each person usually brings along property, money, and personal possessions. At least some of that property is considered ‘separate property.’ As a marriage progresses, couples also acquire property, some of which might be intended to be the property of only one member of the couple. It’s important to understand about keeping property separate during a marriage.

Community Property.

California is a community property state, meaning that property acquired by a couple is considered the property of both partners. The same principle applies to debt, with each partner usually being held accountable for debt owed by either partner.

Separate Property?

Sometimes parties will bring separate property into a marriage or domestic partnership. During the marriage, gifts or inheritance to one partner are also considered separate property, meaning it’s the property of the person who received the gift or inheritance.

Property and debts acquired after the date you and your partner enter into a separation is also considered separate property.

Commingling of Property

As you might imagine, determining whether something is separate property or community property can be difficult. For example, perhaps one spouse uses their own money to buy a house before marrying. However, during the marriage, mortgage payments were made using money earned by both spouses. Equity built up during the marriage is community property, but the down payment on the house is still separate property.

Keeping it Separate.

Fortunately, there are ways to maintain separate property during a marriage:

  • Be careful titling financial accounts and real property. For example, don’t automatically add your new spouse’s name to property you obtained before your marriage.
  • Income and dividends from separate property should be kept separate.
  • Use separate income to maintain separate property.
  • Don’t commingle inherited property and gifts.
  • Maintain accurate records of what property was acquired before and during the marriage.

Final Thoughts.

When spouses own property in more than one state, or have lived and worked in a state other than California during their marriage, the separate property/ community property debate becomes more complex.

To discuss how to handle separate and community property issues, please call us at 415-293-8314. The attorneys at the Law Offices of Judy L. Burger assist clients in San Francisco, Marin County, Santa Barbara, Ventura/Oxnard, San Jose, Gold River (Sacramento), Roseville, and surrounding communities.
Community Property FAQs

Community Property FAQs

California is a community property state. Everyone says that, but what does it really mean? The following questions tackle a few of the questions you may have about community property.

When one spouse makes more money than the other, will their property still be split 50/50?

Divorcing couples negotiate an agreement called a divorce settlement. The division of the community estate is decided by the couple and their attorneys. Couples may agree to split that is not 50/50.

However, when couples are unable to agree, then the court gets involved. To arrive at a fairly equal division of assets and debts, courts may award part of the community property to one party based on economic circumstances. And, remember that income is considered community property in California.

Is an inheritance received during a marriage considered community property?

Property that is inherited by one spouse usually remains the separate property of that spouse unless one of the following two conditions occurs:

Commingling. The nature of an inheritance changes if the receiving spouse mixes, or commingles, the inheritance with community property.

For example, if Rosie keeps the $120,000 cash she received from her grandmother’s estate in an account that only she owns, her husband John generally can’t take it in the divorce. If Rosie instead deposits the cash into the joint account she has with John, the inheritance is now community property.

Transmutation. This occurs when the spouse who received the inheritance takes action that shows an intent to make the inheritance community property.

Using the example above, Rosie receives the $120,000 inheritance and puts it in a separate account. However, she later uses the money to buy a home that she titles in both her and her spouse’s names. She has transmuted the inheritance from separate property to community property.

A spouse who has commingled or transmuted separate property can request reimbursement if the separate property contribution can be traced back to its source. Rosie could ask to have her $120,000 returned, but she would have to prove that the money came from her inheritance. Keeping accurate, up-to-date records is critical.

Does community debt include a spouse’s credit card bills?

Debts incurred during a marriage are typically community debts.

For example, John uses his credit card to buy a wardrobe full of Louis Vuitton while still married to Rosie. His credit card bills are considered community debt and will have an impact on the value of the community estate. When dividing up their assets and debts, John could take the Louis Vuitton and the debt. However, creditors don’t really care about divorce settlements and may come after Rosie for payment if John defaults.

Is a house purchased by one spouse before marriage considered community property?

When spouses buy a house together using community funds, the house is community property. A house purchased by one spouse before the marriage is the separate property of that spouse.

However, the issue can become complicated if community funds were used for the mortgage or other house-related expenses. Also, the spouse may be found to have an interest in the home if the couple was married for a long period of time.

Call to learn more about community property.

It’s not always easy to understand which assets are considered community property and which ones are not. An experienced California divorce attorney can help you understand how much financial information needs to be disclosed.

Judy Burger is a California Certified Family Law Specialist, and founder of the Law Offices of Judy L. Burger. Please call our offices at 415-293-8314 to set up an appointment with one of our attorneys. We assist clients along the Northern to Central California Coast.