California Prenuptial Agreement Laws: Your Complete Guide

The general rule in California is that income earned during marriage has a presumption of being Community Property and, therefore, is split 50/50 in a divorce.

For example, if Michael earns income from his employment during marriage, said income in a CA divorce will be subject to a 50/50 split (unless an exception applies).

Possible exceptions to this rule: 

• Passive income from a Separate Property source

• Contributions of income to one spouse’s education/training may be reimbursed. (Cal. Fam. Code 2641). 

  • Example: John uses some of his income to pay Jane’s student loans; John may be reimbursed for these payments for her loans. 

• An additional award beyond the 50/50 split may be given to one spouse if there was misappropriation of property (Cal. Fam. Code 2602). 

  • Example: John misappropriates Community Property income by putting this money into a secret bank account. The court could then award John’s wife with more than a 50/50 split of the community funds. 

The general rule in California is that income earned during marriage has a presumption of being Community Property and, therefore, is split 50/50 in a divorce.

For example, if Michael earns income from his employment during marriage, said income in a CA divorce will be subject to a 50/50 split (unless an exception applies).

Possible exceptions to this rule: 

• Passive income from a Separate Property source

• Contributions of income to one spouse’s education/training may be reimbursed. (Cal. Fam. Code 2641).

  • Example: John uses some of his income to pay Jane’s student loans; John may be reimbursed for these payments for her loans.

• An additional award beyond the 50/50 split may be given to one spouse if there was misappropriation of property (Cal. Fam. Code 2602).

  • Example: John misappropriates Community Property income by putting this money into a secret bank account. The court could then award John’s wife with more than a 50/50 split of the community funds. 

From the case, Marriage of Hug, 154 Cal. App. 3d 780 (1984), this formula is used in situations where the stock options were given out to attract the employee to the job or reward them for their past services to the company. If this is the case, the stock options will be considered deferred compensation.

Here is the formula that may be used to determine what the Community Property value is in the stock options:

Here’s an example of the Hug formula in action:
John was hired on January 1, 2022. Him and his wife separated on May 1, 2022. The stock options were exercisable on February 1, 2022 and vest on February 1, 2023. John has 20,000 shares.

Thus, the number of Community Property shares that are divisible in the divorce are 6,666.7. His wife is entitled to 50% of that.

The Nelson formula is another way to calculate the number of shares that should be Community Property. This formula is used when the stock options are granted as compensation for future services and given as an incentive to stay with the company.

Here is the formula:

Here’s an example of the Nelson formula in action:
John was granted 20,000 shares on January 1, 2022. John and Kate separated on April 1, 2022. 10,000 shares became exercisable on January 1, 2023.

Thus, the number of Community Property shares that are divisible in the divorce is 3,330. His wife is entitled to 50% of that.

The general rule in California is that the funds contained in retirement accounts opened before marriage are considered Separate Property, and so is the increase in value on the Separate Property contributions. However, any contributions and the income and/or appreciation in value of any Community Property contributions during the marriage will be considered Community Property.

For example, Natalie has a 401k with $100,000 in it before marriage. She continues to add to it during the marriage (in the amount of $50,000) with her income earned during the marriage. At the time of divorce, the original $100,000 earned $10,000 in interest. So, the original $100,000 + $10,000 in interest will likely be considered Separate Property, whereas the $50k that was contributed, plus any income and/or appreciation thereon, will be considered Community Property since it was created with Community Property funds (a.k.a., Natalie’s income during marriage).

The general rule in California is that retirement accounts opened during marriage are presumed to be Community Property and subject to the 50/50 split, if they are established with Community Property funds.

The general rule in California is that any intellectual property or license created before marriage, such as copyright or trademark, is considered Separate Property. However, if labor and efforts during marriage cause an appreciation of the value of the IP, then the community may gain an interest therein.

The general rule in California is that any intellectual property created during marriage, such as copyright or trademark, is considered Community Property. If something like intellectual property is considered Community Property, it may be difficult to split it 50/50, as you can imagine. Instead, what typically happens is it will be offset with other assets in the Community Property pool. For example, if the value of the intellectual property is $100,000, each spouse gets the equivalent of $50,000, so one spouse may instead get $50k more of a different asset.

The general rule in California is that any appreciation of Separate Property that occurs during the marriage is considered Separate Property unless there was a contribution of labor and efforts of either party that created appreciation of value of the asset. For example, let’s say Jennie owns a condo worth $200,000 prior to marriage, making it Separate Property. At the time of divorce, the condo is worth $800,000 in part due to the contributions of her spouse to renovate the condo. Thus, a portion of the appreciation of $600,000 may be considered Community Property and split 50/50. The original $200,000 remains Jennie’s Separate Property.

The general rule in California is that property acquired in exchange for your Separate Property has a presumption of being Community Property, although there may be a reimbursement for the original property.

For example, if William has a home prior to marriage (i.e., his Separate Property) worth $500,000 and then sells it and uses the money to buy a new home during the marriage, and that new home appreciates to $1 million, he may be able to receive a reimbursement of $500,000, but the appreciation may be considered community, and thus, split 50/50.

The general California rule for businesses owned prior to marriage are considered Separate Property, not divisible in a divorce. However, Separate Property businesses can become partially Community Property if the spouse contributed to the increase in value of such business.

For example, Ashley owned a small business prior to marriage. Its approximate valuation before marriage was $500,000. At the time of divorce, the business is valued at $5 million, in part due to her labor, efforts, and/or monetary investments during the marriage. The $4.5 million appreciation of the business may now be considered Community Property and divided evenly between the couple, though the original $500,000 will return to Ashley as her Separate Property.

Businesses established during the marriage are considered Community Property and subject to a 50/50 split.

The general rule in CA is that inheritance received at any point is considered Separate Property.

Any debts that either spouse had before getting married will remain the responsibility of the spouse who originally incurred those debts. These debts will not be divided between spouses. Each spouse is solely responsible for paying off the debts they brought into the marriage. (Cal. Fam. Code 2621). However, there are a few exceptions where the community may be liable for student loan debt, including if the community substantially benefits from the debt incurred, for example, student loan debt, the community may be partially or wholly responsible for the debt.

All debt incurred during marriage, regardless of who took it out, will be divided 50/50.

Possible exceptions to this rule:

• If the total debt exceeds the amount available in the estate, then the court may decide who should take on the excess debt based on what is fair. (Cal. Fam. Code 2622).
• Non-essential debt taken out after the couple separates but before the divorce is final will be attributed to the party who took out the debt. (Cal. Fam. Code 2623)
• Debt that only benefits one spouse may not be split 50/50. (Cal. Fam. Code 2625)
• Student loans do not get divided 50/50, they go to the person who took them out. (Cal. Fam. Code 2641)

The general rule is that any property deemed to be Community Property will be split evenly (50/50) between the divorcing couple.

Possible exceptions to this rule: 

• Contributions of income to one spouse’s education/training may be reimbursed. (Cal. Fam. Code 2641).

• Example: John uses some of his income to pay Jane’s student loans; John may be reimbursed for these payments for her loans.

• Contributions of Separate Property towards other Separate Property are reimbursable. (Cal. Fam. Code 2640).
  

  • Example: John uses his inheritance (which is considered Separate Property) to help fix up Jane’s Separate Property home. John may be entitled to a reimbursement of his Separate Property.

• An additional award may be made to one spouse if there was any misappropriation of the property (Cal. Fam. Code 2602).

There are generally two options when it comes to CA spousal support: temporary support or permanent support and they are determined differently.

For temporary support, the court may grant a monthly payment from one spouse to the other during the divorce process. If the couple can’t agree on the amount, a judge will decide based on factors like the needs of the spouse with less money, the ability of the other spouse to pay, and the difference in their incomes. Often, family law professionals use a software called DissoMaster to calculate these temporary payments fairly.

Permanent spousal support (which is payments after the divorce is final) is especially common in long-term marriages or when there’s a significant income gap between spouses. A judge considers various factors like the length of the marriage, each spouse’s age and health, their incomes, earning capacities, and contributions to each other’s careers. (Cal. Fam. Code 4320)