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Community Property in California
California is a “community property” state. This means that in a divorce (dissolution of marriage) the value of all of your assets, and debts, acquired during marriage and before separation are almost always divided equally between husband and wife. California law requires that the net value of assets received by each spouse be substantially equal as long as there has been no breach of fiduciary duty, fraud, or misappropriation by either spouse. The court has wide discretion over how to accomplish such a division and can do so as long as the acceptable marital balance sheet reflects an even division overall.
The division of property in California can be complex. In many of these cases, a division of assets and debts is effected by way of an Equalizing or Equalization Payment. For example, if one spouse gets a $20,000 car and the other receives a house valued at $50,000, the first spouse is entitled to an “equalizing payment” of $15,000 from the other to make up the allocated difference ($30,000 divided by 2).
Property owned prior to marriage or acquired by gift or inheritance during marriage will usually remain the property of the recipient if the property maintains its original form and has not been commingled or transmuted. In other words, if you do not change the title of record on the property from your separate property to community property, or deposit inherited funds into a joint bank account, this property will likely be confirmed to you as your separate property. California law does require that separate property be confirmed to the appropriate party in a dissolution of marriage.
Whether separate property or community property, all assets and debts must be disclosed during the dissolution process. It is vital to the durability of your final written agreement that no assets be omitted.