Characterization of Property
I have acquired some valuable items during my marriage. Will my spouse receive a share?
All assets (and liabilities) must be characterized as either “community” or “sole and separate” in the context of a divorce. The statutory presumption is that all items acquired during the term of the marriage (from the date of the wedding through the date one spouse is served with a Petition for Dissolution or Legal Separation) are community assets. Community assets are subject to division and/or allocation upon divorce or legal separation.
Assets acquired by one spouse before the date of marriage or subsequent to the date of service are the sole and separate assets of that spouse. However, certain exceptions do apply.
Property or funds received by a spouse by way of inheritance, regardless of the timing, are the separate property of that spouse. Additionally, gifts received by a spouse from a third party are the separate property of that spouse. A cautionary point will be to confirm that the property in question was a gift to only one of the spouses and not both. For example, a wedding gift from the parents of one toward a down payment on a house is very likely a gift to both spouses. The gifting exception can (but does not always) apply to gifts between spouses. In order to determine if the gift between spouses is separate property there will need to be an analysis of the intent of the parties and if it can be reasonably determined that the item should be considered an investment of the couple as opposed to a gift. Additionally, property that is acquired in exchange for sole and separate property will remain sole and separate subject to the discussion of commingling and community liens below.
If one spouse receives a separate property interest by way of inheritance or gift if must be kept separate to avoid any claims of commingling by the other. Titling property in both spouses’ names or contributing sole and separate funds toward the purchase or improvement of property that is in both spouses’ names is a common way to commingle. Once commingling has occurred it will be the burden of the spouse claiming the sole and separate interest to trace his or her property interest. Doing so in a fashion to satisfy the court is often a difficult task. Most difficult is the tracing of funds deposited into a joint bank account. Typically, the spouse who contributed will only receive his or her original investment back if there is a written agreement for reimbursement.
The reverse situation, of the community investing funds into one spouse’s sole and separate assets and seeking reimbursement carries a lesser burden. Common examples are when the spouses invest their earnings and/or savings into a house or business owned by one of them before the marriage. The community will not acquire an ownership interest in that property but may be eligible for reimbursement for its investment and corresponding earnings through what is known as a community lien on the underlying asset. The creation of a community lien can be determined by the court and does not require a written agreement between the parties.