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What is property characterization?

On Behalf of | Apr 19, 2022 | Community Property Division

Much of a couple’s focus during divorce is deciding how to divide marital assets. While every state has different divorce laws, the courts will determine property division either equitably or equally. A majority of states follow equitable distribution guidelines, in which the judge will determine a fair, but not necessarily equal, distribution of marital assets based on the unique circumstances of the case.

In California, however, the courts view the division of assets from the standpoint of community property, where all assets or debt that the couple has acquired during the marriage are subject to 50/50 division. Any property that either partner brought into the marriage or has acquired during separation or divorce is separate property.

The challenge for many Carlsbad residents occurs over disputes about what assets are community property. A business owner’s company, stock holdings, or income may be subject to equal division, and the financial assistance that one spouse gave to another may change how the courts will view an acquired asset.

These and other complex financial scenarios can make property division during divorce quite challenging. It can help to have informed legal guidance to assist with negotiations and the litigation of financial issues during proceedings.

What property becomes part of the inventory?

In California, property characterization establishes how the courts will recognize community or separate property, and the law also stipulates how spouses may transmute community property to separate property and vice versa.

Property may include real or personal property, such as:

  • The family home or car
  • Furniture, clothing, a boat, paintings, or jewelry

It can also include financial holdings or intangible property such as:

  • Bank accounts or cash
  • Pensions and IRAs
  • Stocks or bonds
  • Life insurance
  • A business or investments
  • IP

What problems may arise?

Issues may come up over when or how one spouse acquired an asset. When this occurs, the courts rely on the date that the spouse acquired the asset. The lines can become less clear, however, the longer the couple has been married and how much commingling of assets has occurred.

Part of property characterization involves determining the value of an asset and the right of reimbursement when one spouse has shared separate property to pay debts or acquire financial holdings on behalf of the other spouse.

Of course, any transfer or acquisition of property may have tax implications. Finally, a vital component of the process is the accurate valuation of all property, including a family business, professional practices and complex financial holdings.