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Understanding the Division of Commingled Property in California

When you got married, you and your spouse started a brand-new legal household. You agreed to share what you have and support each other for the length of your marriage. Those terms are more than just romantic sentiments. In California, married couples are subject to community property laws, so almost everything either person earns or acquires during the marriage is considered a joint asset. 

That’s fine – until it’s time to get a divorce. California requires spouses to split the value of community property equally unless a prenuptial or postnuptial agreement is in place. The problem is that identifying community property is often harder than you’d expect. If either spouse had significant separate assets prior to marriage, it’s likely that the couple now owns substantial “commingled” property. 

Commingled property cannot be split down the middle because it’s not entirely community-owned. That can make achieving the fair division of assets substantially more complex. Let’s break down what commingled assets are, how they are created, and how you can work with an attorney to find a fair division of assets. 

What Are Commingled Assets?

California law classifies asset ownership in one of two ways when couples divorce. The first is joint ownership. Anything either spouse earns or creates during the marriage is considered jointly owned. This includes:

  • Salaries, wages, and bonuses
  • Interest, dividends, and capital gains on investments made with jointly owned funds
  • Real estate purchased with joint funds
  • Businesses and intellectual property created during the marriage

The second classification is separate ownership. Before a person gets married, they are assumed to own everything they earn or create independently, or separately, unless another contract states otherwise. After the wedding, these assets remain separate. Other types of separate assets include gifts and inheritances given to one spouse, property purchases with individual funds, and profits and capital gains made on separately owned property.

However, separate and community assets can be blended, or commingled. For example, if an asset is purchased using a combination of community funds and one spouse’s independently owned funds, it is not fully separate, but it is not joint either. Instead, the item’s value is divided proportionately between the community and individual estates. This matters little while the couple is married. However, if the couple decides to divorce, they will need to determine how much of the property’s value is communal so it can be divided without sacrificing the individual’s separate ownership. 

Examples of Commingled Property

There are many ways that an asset can become commingled. In general, if your spouse contributes to the care or maintenance of a separate asset, they may develop a legitimate claim of ownership to part of that asset’s value. Meanwhile, if you invest your individual funds into a community asset, it may no longer be wholly communal. Common reasons a property may become commingled include:

  • Depositing separate funds in community accounts. If you create a joint bank account and deposit money you earned before your marriage, that account’s value is now blended.
  • Maintaining separate properties with community funds. The value of the community funds invested into a separate asset creates a claim of ownership by the marital estate. The extent of that claim may even exceed the amount invested if it leads to a substantial increase in value.
  • Expanding a business during the marriage. A spouse’s labor and its proceeds are considered community property. If you put in the time and effort to grow your business after getting married, that effort may give the marital estate a claim to ownership over the company’s increase in value.
  • Having your spouse help maintain a separate business or asset. If your spouse participates in your business without being fairly paid or takes on a material responsibility for caring for a previously separate asset, their contributions likely give them partial ownership. 
  • Using separate assets to support the household. If you consistently use certain assets to benefit your shared household, they may be commingled. For example, if you owned a house independently before marriage, but your spouse moves in, and it becomes your joint primary residence, it’s likely part of the marital estate. 

How Commingled Property Is Divided

Commingled property cannot be split equally like community assets. Instead, it’s necessary to identify how much of the item’s value should be considered separately owned. That amount is subtracted from the gross value of the asset, and the remainder is considered joint property to be divided between the spouses. 

For example, suppose you contributed $200,000 of separate funds to jointly purchase a home worth $800,000. In that case, only $600,000 of the property’s value is jointly owned. In a divorce, you would automatically have the right to your initial $200,000 investment and half of the jointly owned value, or $300,000, for a total of $500,000. 

However, most commingled property is harder to untangle. The California court system approves two methods for tracing separate ownership during divorce: 

  • Direct tracing involves using comprehensive financial records to identify the funds used to purchase assets and how the purchase was intended. 
  • Family expense tracing relies on proving that the value of a property is greater than the investments of one type of asset would justify.

An experienced divorce attorney can help you understand how these methods work and determine the true value of your marital estate. At Kaspar & Lugay, LLP, we have decades of experience with complex property division during high-net-worth divorces in California. We are prepared to help you achieve a fair divorce settlement while protecting your separate assets from division. Schedule your consultation today to discuss your concerns and learn how we can assist you during your financially complex divorce.