There are generally two legislatively mandated methods in the US in which property is divided in a divorce matter: community property and equitable distribution. California is one of the handful of states that uses community property whereby that property which was acquired or accumulated during the marriage and before the date of separation is divided equally.
You and your spouse, though, can divide any of your property in any manner you wish in your marital settlement agreement. Otherwise, the court may have to divide the marital property once it determines what constitutes marital, separate or even quasi-community property. In some instances, the property division in California is not so easy to determine.
Although the property you possessed before you married is considered yours and is separate from the community property, it is also separate if it was obtained after the date you separated and before the marriage was dissolved. Separate property is also that which you inherited even during marriage. Any gift that was specifically given to you is also considered your separate property.
Determining the actual date of separation may be disputed. Typically, it is the day one spouse moved out and began living apart but there are circumstances where the parties share the same residence but are still living apart so long as their conduct demonstrated a physical separation and with the intent to end the marriage. For example, were there separate entrances and bedrooms and did you both take pains to not see or interact with one another? In other cases, a spouse may move out but not with the intention of ending the relationship. Again, the court will examine your conduct and statements to see if the marital relationship effectively ended at that point.
Any property acquired during the marriage and before separation is presumed community, including compensation. This includes stock options, employer contributions to a profit sharing plan, deferred compensation disguised as a gift, vacation pay or other benefits considered deferred or which vest in the future such as on retirement or when employment ends.
Any income derived from a private business that was earned as a result of a spouse’s participation is community property. If a spouse merely collects income without any involvement, it is considered a return on investment and is that spouse’s separate property unless the business was acquired during the marriage. In some cases, though, some of the income might be community while another portion is separate if work done by the spouse was performed both before and during the marriage.
Further, any debt accumulated during marriage and before separation is community property and the obligation of both parties regardless of who was responsible.
Real and personal property acquired during the marriage and before separation that was acquired outside of California that would have been community property if the spouse had been living in California is quasi-community property. This also refers to any property acquired in exchange for this type of property. The court can thus order the distribution of such assets existing outside the state.
The parties to property division in California may also transfer or simply designate separate property as community or vice versa in their marital settlement agreement. The same can be accomplished in a prenuptial agreement where the parties will usually state that any assets a spouse may accumulate in a particular business are considered separate so long as the agreement was entered into after full disclosure and was done so voluntarily and willingly.