Separate and Community Property
California Family Law generally recognizes two types of property: Separate Property and Community Property. During a dissolution of marriage, this distinction is crucial in order to make the division of property, especially in relation to supplying the courts with an accurate Moore Marsden Calculation. While I am not an Attorney, as a CPA Forensic Accountant, it is necessary for me to consider the various legal issues in order to formulate my calculations. You should consult a Licensed Attorney to obtain legal advice.
In my experience as a Forensic CPA, Separate Property can generally be defined as property that is owned by one spouse before the marriage or property that is acquired during marriage by gift or inheritance, as long as the property is specifically inherited or gifted to one spouse. Typically, Separate Property is not subject to division in a divorce. In addition, any income earned from Separate Property such as rental income as well as any increase in the value of the property generally remains the sole property of that spouse. However, Separate Property can become Community Property, either partially or fully, under certain circumstances.
In my experience as a Forensic CPA, Community Property is generally defined to be any property that is acquired during the marriage by either spouse. This includes any income earned by either spouse during the marriage, as well as any real estate property acquired using that income. For example, salaries and bonuses during the marriage, retirement plans earned during the marriage, and stock options earned during the marriage would generally be considered Community Property. In a divorce, Community Property is generally divided equally between the spouses, however that can be complicated by a number of factors, such as the commingling of Separate and Community property or being able to trace the source of the property.
The complexity of this situation highlights the importance of keeping Separate and Community Property distinct and separate, whenever possible. This may involve maintaining separate bank accounts or keeping detailed records of financial transactions related to each type of property. However, it is also important to note that in some cases it may be difficult or impractical to keep the two types of property completely separate and oftentimes, takes an Expert to help identify and calculate the Community and Separate interests. Sometimes, the Separate and Community interests are so commingled that the Separate may lose their interest to the Community.
In regards to Real Estate, the Community has the ability to take over some or all of the Separate appreciation in a formerly Separate property before they even make one payment towards the principal in certain circumstances. One way that can happen is if you add your spouse to the home loan. Though the other spouse may not be added to the title, the act of adding them to the home loan makes them liable for the loan. This not only risks transmuting the property to Community but by adding them to the loan (bringing up a host of other legal issues), it is possible that you can instantly transfer some or all of those Separate gains to the Community. The Community may now get the same credit for the acquired loan balance as if they were making the payment. Since the Community is now responsible for making the balance of the Principal Payment of the acquisition price, it may increase its pro-tanto interest substantially. So, even if the Community doesn't make many payments, if you add them to the loan, all of a sudden the Community may acquire a huge built-in gain or loss because the Community has just acquired the obligation of the acquisition principal.
If you have any questions about how the Separate and Community Property distinctions will affect your Moore Marsden Calculation or any other Moore Marsden issue, contact us at www.MooreMarsdenExperts.com! Did you know that in addition to being CPA's, we are also Licensed Real Estate Brokers?
This article contains information in general about the Moore Marsden Calculations and is not tailored to your specific case which may have a different set of facts and circumstances. We are not Attorneys and we are not giving legal advice.Consult your Attorney and your Moore Marsden Expert for your individualized calculation based upon your individual facts and legal issues.
