When couples divorce, their assets and debts are divided according to state laws. California is one of the states that is a community property state. It helps to know what this means for assets and debts.
Understanding community property laws
According to Division 4, Part 2 of the California Family Code, assets acquired during the marriage are community property. This means that the couple shares equal ownership of them. The community property rule applies to assets acquired while the couple resided in California. There may be exemptions for certain assets like inherited property or some others.
Dividing assets during a divorce
Most assets bought during a divorce are shared even if only one spouse pays for them. Couples may decide to sell some using the community property approach for shared assets. For example, if they own a house, two vehicles and a boat, they may sell the home and each keep 50% of the proceeds. They may decide to sell the boat and each keep a vehicle. Each case is different, and some couples can amicably decide on how to divide assets in a property settlement agreement. Dividing assets carefully is especially important in a high-asset divorce.
Dividing debts during a divorce
Debts incurred after the marriage and before the separation are also the joint liability of the couple. For example, a couple’s mortgage is a joint debt. Couples often have joint credit cards and other debts as well. It is important to know all the debts the other spouse incurred.
Splitting debts and assets can be complex. However, the state provides guidelines for its community property rules that address potential issues.