California Community Property Law | Marriage and Business
by Vanessa Soto Nellis
We all love the romance of marriage. If you are thinking of taking the romantic plunge, you should consider community property law, especially if you live in California when you get married – community property law will apply to you. Ultimately, most of us hope that our marriage and business interests will last a lifetime.
With the proper planning and effort, you can keep both marriage and business running smoothly, until death do you part. Hopefully.
But the fact is, approximately 50 percent of first marriages will end in divorce. While it takes two people to get married, it only takes one person to get divorced in California. So it may be some comfort to know you can still save one institution if you can’t save the other. Here’s what you should know about California community property law:
1. Community Property Defined
Generally speaking, California community property law covers all property acquired during the marriage, unless a spouse inherits property or receives a gift.
Community property includes income, whether it comes in the form of stock instead of salary, company profit-sharing plans, vacation pay, deferred compensation packages, retirement plans, etc. It also includes profits from a spouse’s business whether the business is characterized as a sole proprietorship, a partnership or a closely-held corporation.
It also includes debt incurred after marriage, no matter which spouse acquires the bills.
Separate property usually includes any property owned by a spouse before marriage up to separation, or acquired by gift or inheritance.
2. Marital Property Re-Defined
Did you know you can redefine your community property? Through a process called Transmutation, you and your fiancé or spouse can define real estate acquisitions as community property or separate property, or convert pension benefits from separate property to community property, or vice versa.
Most people sign prenuptial and/or postnuptial agreements to transmute property. In short, you can redefine all of your property either before or during your marriage, if you and your spouse both agree to written transmutation terms.
3. Your Business Protected
Some people can mix marriage and business and keep both running smoothly. One way for you to do this is to enter into an agreement with your spouse or fiancé that outlines partnership interests for both of you.
For those of you not in business with a spouse, consider the value of prenuptial agreements. These premarital contracts can:
▪ Protect your business interests, and let you know what to expect in the event of a divorce.
▪ Protect your business partner’s interests, particularly if you are involved in a family owned business.
▪ Protect the growth of your business from becoming community property.
▪ Protect you, if you should contribute to the growth of your spouse’s business.
Because California community property law constantly changes, you’ll want to get expert advice from a family law attorney and/or an estate planning attorney.
At the very least, a prenuptial agreement is the first step in making sure you and your spouse understand your financial obligations to each other, your children and your separate or joint business interests.
Vanessa Soto Nellis is a Los Angeles divorce attorney in our Family Law Practice Group. If you have questions about community property law in California, reach her by calling 818.990.2120.