In the absence of a prenuptial agreement or postnuptial agreement, a Californian divorce results in a division of assets and property in half. Here’s what to know about property value in a California divorce.
California is a community property state meaning unless partners have signed a premarital or postnuptial agreement, they are expected to divide community property 50-50 when divorcing or legally separating. Dividing marital properties and assets can be tricky and painstaking.
Valuation of Property in a California Divorce
Understanding Community Property in California
Community property qualifies as all of the following which partners acquired together during their legal union [including property and assets located outside California:
- Assets
- Income
- Investments
- Property
- Debts
All of the above are assets that can be split between spouses as dictated by The Judicial Branch of California in Dividing Property and Debts in a Divorce Document.
Related: Community Property Laws in California
Two assets should be valued especially carefully in California: Homes and Businesses
Valuation of a House
Marital homes absorb much income throughout a marriage whether in maintenance, upgrades, mortgage, etc. Often what a couple paid for a home may not reflect its present market value so spouses should always obtain an appraisal during the divorce process.
Valuation of a Business
Often, business valuations are only necessary if a spouse started a small business during the marriage or in the case of jointly owned businesses.
If a business, or the ownership interest in a business, must be divided, then one or both spouses should hire a business valuator. A business valuator will produce a business valuation report which estimates the current value and the projected future value of the business or the ownership interest in the business.
There are three main approaches to valuation: asset approach, income approach, and market approach so make sure to pick the approach which best suits your circumstances. A firm grasp of business valuation allows parties to understand exactly how assets are being divided and ensure that everyone is getting their fair share.
Related: Dividing Your Business in a California Divorce
FAQs About Property Value in a California Divorce
How to best protect assets?
- Catalog assets
- Have assets appraised
- Collect financial documents
- Prove entitlement of assets using collected financial documents
- Negotiate a settlement
- Present a prenuptial or postnuptial agreement [if applicable]
- Maintain record transparency
Related: How to Protect Your Assets in a California Divorce
What is separate property in California?
Under California Family Code 770, separate property includes but is not limited to:
- Property acquired before the marriage
- Gifts or inheritance received before or during the marriage
- Income earned from separate property
- Assets or debts conveyed as a spouse’s separate property by the other spouse
Can separate property become community property in California?
Separate property can become community property through commingling or transmutation.
- Commingling: separate property can become separate property if it’s placed in a joint bank account.
- Transmutation: Spouses can agree to legally transmute separate property as community property, or vice versa.
Keep in mind that during divorce, spouses may attempt to claim the separate property as their own. Parties must trace their property through financial and property documents such as deeds, receipts, and bank statements. Also vital, is properly distinguishing community from the separate property which may become complicated when there is difficulty proving rights of ownership.
Is the Date of Asset Valuation Important?
California courts understand that asset value changes over time, and the date of separation of a divorcing couple may predate the actual divorce date by a large margin.
California Family Code Section 2552 stipulates that property division and valuation takes place as close to the date of the divorce trial as practicable unless the stipulation of “for good cause” to “accomplish an equal division of the community estate … in an equitable manner” is called into effect.
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