Is Your Home Community Property?

Is Your Home Community Property?
This is a popular topic that is often misunderstood. According to IRS Publication 555, community property is property acquired during your marriage while you are living in a community property state such as California. It can also be property you and your spouse have converted from separate property (this can happen unintentionally). And lastly, community property is property that cannot be identified as separate property. Sounds simple enough, but it can get complicated.
Community property can become of particular importance when a married couple is going through a divorce. It’s important to understand what’s hers and what’s his before agreeing to a Marriage Separation Agreement (MSA). When a couple agrees to an MSA it’s nearly impossible to change, even if it contains errors. One of the more typical questions divorcing couples ask is in regards to a home that one of them acquired before marriage. Is that home community property? It depends. If you have agreed to convert it to community property, then it is. Let’s assume you didn’t agree to convert the home. If during the course of your marriage you made house payments on that home from “community income”, then it is automatically converted to community property.
To clarify, here’s a typical scenario. Let’s suppose that your parents gave you a down payment on a home when you were single. You owned the home for a few years, gained more equity, then got married. You didn’t get a prenuptial agreement because you were going to be in love forever. For a few years you make the payments on that home from money you earn during the time you have been married. Guess what, that money you earned came from “community income”.
Congratulations, you may have just converted a portion your home to community property. Later, things don’t go so well with your spouse and you both decide to divorce. Part of your home is now legally community property that can be split between the two of you.
There has been a type of divorce gaining popularity over the years called Collaborative Divorce. It helps couples going through divorce look at what’s best for all and doing the right thing instead of one person trying to “win”. Divorcing spouses each have their own coach who is a licensed mental health professional. Each also has their own Collaborative Attorney who is highly trained in both mediation and collaboration. Certified financial and child specialists complete the team who all work together to help you split amicably.
While any couple can take advantage of this professional service, it’s particularly well suited for those with children because the split is conducted without the typical ex-bashing you see when divorcing couples go through traditional court systems. We all know the kids get hurt when that happens. Because Collaborative Divorce does not use the traditional court system, it is private and may keep divorcing couples’ property and concerns out of the public’s view. And if you’ve ever investigated the cost of litigation, you’ll find that Collaborative Divorce can be a significantly less expensive alternative. No wonder this service has gained so much popularity over the years.
To find out more about Collaborative Practice or to find a Collaborative Professional, visit www.cpcal.org, the non-profit California organization of Collaborative Professionals.
For a free copy of IRS divorce related publications, send me an e-mail through my website: www.GaryNobile.com. Please consult with your attorney or CPA before making any decisions regarding legal and tax matters. Gary Nobile is a full service Realtor serving Silicon Valley and has earned the designation “Real Estate Specialist – Divorce” from the California Association of Realtors, DRE #01068890, (408) 247-4029.