Property Division and Marital Debts
California is a community property state. That means, generally, that all income earned and assets acquired from the beginning of the marriage until the date of separation or trial, absent a written agreement to the contrary (e.g., a prenuptial agreement) is community property and must be divided equally between the parties. Similarly, all debts incurred by either spouse during the marriage and until the date of separation are community debts or liabilities for which each spouse is equally responsible. Our goal is to provide creative and practical solutions to dividing community property and community debt, without sacrificing our client’s community property rights. We do this by drawing upon our experienced attorneys, as well as certified public accounts or other financial experts to determine the true income and value of a variety of assets and business entities, such as closely-held corporations, partnerships, trust, real estate, public and private securities, stock options, retirement accounts and pensions, that may be part of the parties’ marital property.
Spouse’s Owe Each Other Fiduciary Duties With Respect to the Management and Control of Community Property
Absent a written agreement to the contrary, such as a prenuptial agreement, neither party has the exclusive right to manage or control community property. That means each spouse owes the other the highest duty of good faith and fair dealing to the other spouse and neither can take advantage of the other with respect to the management and control of community property. This duty continues throughout the marriage until the date the community assets and liabilities are distributed or divided. In the event of a breach of this duty, the aggrieved spouse has a statutory right to bring an action for an accounting, and other relief, such as being put on title to property held in the name of the other spouse alone, in addition to one-half the value of any asset undisclosed or transferred in violation of the party’s fiduciary duty to the other spouse, and for reasonable attorney’s fees This fiduciary duty is so strong that a statutory claim for breach of fiduciary duty can be brought against another spouse even if there is no pending divorce or legal separation action.
Marital Property Debt and Reimbursements Claims
Except as other provided by statute or written agreement, the marital community is liable for each spouse’s debts incurred both during and prior to marriage, including support obligations from a prior marriage. This is so even if the debt did not benefit the community. In such a case, however, the community may have a claim for reimbursement against the community share of the debtor spouse. Be sure you know the pre-marriage debts and obligations of your future spouse before you marry and consider entering into a prenuptial agreement to protect the community assets.
Generally, each party’s separate property is not liable for the other spouse’s debts, no matter when they were incurred. There is an exception, however; a spouse is personally liable for a debt incurred by the other spouse for that spouse’s “necessities of life” (food, clothing, shelter, etc.) while they are living together. The non-debtor spouse, however, will have a right to be reimbursed to the extent that the debtor spouse had separate or community property available but not used at the time the debt was incurred.
Reimbursement for Community Funds Used Toward a Spouse’s Education or Training
Although the community does not acquire a community property interest in a spouse’s education or training. Nevertheless, if it can be shown that one spouse worked so that the other could attend school or pursue training for a new career or to enhance their earning capacity, the community has a right to be reimbursed for those contributions. This is so even if the education or training occurred before marriage. The spouse claiming reimbursement has the burden to trace the use of community funds to pay for the other spouse’s education or training. Also, any loan incurred by a spouse for education or training will be assigned to that spouse during a property division and cannot be considered in determining an equal division of community property and debt.
What Happens When Separate Property is Used to Pay for Community Debts Or Contribute Toward Community Property?
If the payment was made during marriage and not after separation, then it will be presumed that this was a gift and the contributing party will not have a right to reimbursement. If, however, the separate property contribution was made after separation and before trial, it is no longer presumed to be a gift to the community and in that case the court has discretion to reimburse the contributing party out of community assets. Such reimbursements are called Epstein credits, based on the California Supreme Court case Marriage of Epstein (1979) 24 Cal.3d 76.
As you can see, issues of property division of marital assets and assignment of marital debts and reimbursement claims raise complex issues that may go unnoticed or may be resolved incorrectly without an experienced and aggressive property division lawyer. Contact our law office for a consultation to help you protect your community property rights and get your fair share in any property division settlement or trial.
- Please contact us today to schedule a consultation about community property and debts in your case.