California is a community property state. This means that when a couple cannot agree on how to divide property during a divorce, the court makes an even 50-50 division between both spouses. However, only property deemed community property is subject to division. Community property typically includes all property acquired during the marriage, regardless of who holds title but does not include inheritances or gifts. All other property is deemed the separate property of each spouse and is protected from division.
Property can be protected in a divorce through prenuptial agreements in California. A prenup, a legally binding document, allows you and your intended spouse to specify the kind of property acquired during the marriage to be treated as separate. To be valid, state law requires the prenup to be in writing and signed by you and your intended spouse after a full disclosure of all of the assets owned by both parties.
To ensure that the property you acquire before your marriage and other separate property stays protected, the source of the property must be traceable. If separate property is mixed with community property to the point that it cannot be distinguished -- known as commingling -- it becomes community property. For example, say you receive a $25,000 cash inheritance during your marriage and deposit it into you and your spouse's primary joint checking account. Unless you can show that the funds spent from that account did not include the inheritance money, it is likely that the money will be considered community property and will not be protected from division.
Your property also may be protected by converting community property to separate property during the marriage. This is known as transmutation and is legal under California law, provided the couple reclassifies the property in writing. While this can be a way to protect property that has been commingled, a couple must be careful to not use transmutation to avoid debts. In California, during marriage, creditors may make claims against all community property, regardless of which spouse incurred the debts. After divorce, creditors can only go after the portion of the community property awarded to the spouse who incurred the debt, along with her separate property. Reclassifying all property as the separate property of the spouse who did not incur the debt would frustrate the ability of creditors to collect. For that reason, California passed the Uniform Fraudulent Transfers Act, which voids transfers made with the intent to defraud creditors.