California Family Code Section 760 presumes that all property either spouse acquires during marriage while living in California is community property, owned equally by both, unless another statute says otherwise. That one sentence drives how assets get divided in divorce, who is liable for debts, and how property is taxed when a spouse dies. Everything else in California community property law is either an exception to this presumption or a rule about how to apply it.
What the Statute Says
Section 760 is short. It provides that all property acquired by a married person during the marriage while domiciled in California is community property, “except as otherwise provided by statute.”1California Legislative Information. California Code FAM 760 – Community Property That final clause carries real weight. Dozens of other Family Code sections carve out exceptions, and reading Section 760 alone only gets you partway to knowing what you own.
“Property” here is broad. Wages, salaries, business income, real estate bought with community funds, cars, furniture, stock options that vested during the marriage, and retirement contributions made while married all fall inside it. If value was acquired during the marriage and no exception applies, the law treats it as community property. The presumption also decides who has to prove what: when there’s a dispute, the court starts by assuming the asset is community, and the spouse claiming otherwise has to show it.
What Stays Separate Property
Not everything acquired during marriage becomes shared. California Family Code 770 defines separate property as anything a spouse owned before the marriage, anything received during the marriage as a gift or inheritance, and the income generated by those separate assets.2California Legislative Information. California Code FAM 770 – Separate Property of Married Person A $100,000 inheritance from your grandmother stays yours alone, provided you keep it identifiable.
Identifiable is the operative word. Once separate property is mixed with community funds, untangling it becomes hard and sometimes impossible. Deposit an inheritance into the joint checking account you both use for groceries, bills, and vacations, and you’ve created a commingling problem. Two methods exist for sorting it out. Direct tracing matches specific deposits and withdrawals to their source, which works best for large, distinct transactions. The family expense method presumes community funds get spent on household costs first, so any remaining balance can be attributed to the separate contribution. Both require careful records, and a forensic accountant is often the only way to make either one stick in court.
The practical point: to protect an inheritance or gift, keep it in a separate account that never receives community deposits. The moment you blend it, you’ve created an expensive problem for your future self.
When the Presumption Stops Applying
Community property stops accumulating on the date of separation. After that, each spouse’s earnings and savings become their own separate property.3California Legislative Information. California Code FAM 771 – Earnings and Accumulations After Date of Separation Pinpointing that date can matter enormously when one spouse earns significantly more than the other or when a separation stretches out before anyone files.
California defines the date of separation as the moment a complete and final break in the marital relationship occurs. Two things must be true: one spouse must have communicated the intent to end the marriage, and that spouse’s conduct must be consistent with that intent.4California Legislative Information. California Family Code FAM 70 – Date of Separation Sleeping in separate bedrooms while still attending family events together and sharing finances probably won’t qualify. Courts look at the totality of the evidence, which turns this question into a real fight when a bonus, a stock vest, or a business sale lands in the gray zone between “we’re done” and “we filed.”
Changing Property’s Character
Spouses can agree to reclassify property during the marriage. Community property can become one spouse’s separate property, separate property can be converted to community property, and one spouse’s separate property can be transferred to the other. California law calls this transmutation.5California Legislative Information. California Code FAM 850 – Transmutation of Property
A transmutation is not valid unless it is in writing and contains an express declaration accepted by the spouse whose interest is adversely affected.6California Legislative Information. California Code FAM 852 – Requirements for Transmutation Verbal agreements don’t count. Adding a spouse’s name to a deed doesn’t automatically transmute the property either, unless the document includes that express language. Courts enforce this strictly, and a surprising number of couples discover during divorce that what they thought was a binding agreement never qualified as a valid transmutation.
Prenuptial and Postnuptial Agreements
Couples can also opt out of the default rules entirely through a prenuptial or postnuptial agreement. These contracts can cover property rights, division on separation or divorce, disposition at death, and nearly any other financial arrangement between spouses.7California Legislative Information. California Family Code FAM 1612 – Premarital Agreement Content
California imposes real requirements for enforceability. An agreement can be thrown out if the challenging spouse was pressured into signing, or if it was unconscionable when executed and that spouse didn’t get a fair disclosure of the other’s finances. The challenging spouse must have either had independent legal counsel or signed a separate written waiver of that right after being advised to get a lawyer at least seven days before signing. For agreements signed on or after January 1, 2020, a mandatory seven-day waiting period applies between receiving the final agreement and signing, regardless of whether either spouse has an attorney.8California Legislative Information. California Code FAM 1615 – Enforcement of Premarital Agreements Failing any of these gives a court grounds to void the entire agreement.
How Section 760 Plays Out in Divorce
California is an equal-division state, not an equitable-division state. Unless the spouses agree otherwise, the court must divide the community estate equally.9California Legislative Information. California Code FAM 2550 – Equal Division of Community Estate That means 50/50, not whatever a judge thinks is fair. This catches people off guard, especially those moving to California from states where judges weigh each spouse’s contributions and divide unevenly.
Property held in joint form during the marriage, whether joint tenancy, tenancy in common, or community property title, is presumed to be community property for division purposes. That presumption can only be overcome by a clear statement in the title document that the property is separate, or by a written agreement between the spouses.10California Legislative Information. California Code FAM 2581 – Presumption of Community Property for Division
If one spouse used separate funds toward acquiring community property, such as using an inheritance for a down payment on the family home, that spouse has a right to be reimbursed. The reimbursement is limited to the amount traceable to the separate source and cannot exceed the net value of the property at division. It does not include interest or adjustments for inflation.11California Legislative Information. California Code FAM 2640 – Reimbursement for Separate Property Contributions A spouse can waive this right, but the waiver must be in writing.
Community Debt
Section 760 covers property, but its logic extends to the other side of the ledger. The community estate is liable for debts incurred by either spouse before or during the marriage, regardless of which spouse took on the debt and regardless of whether only one spouse signed.12California Legislative Information. California Code FAM 910 – Liability of Community Estate for Debts A creditor can go after community assets to satisfy a debt that only your spouse knew about.
That liability window closes at the date of separation. Debts incurred after that date belong to the spouse who took them on, not the community. This is another reason pinpointing the separation date matters so much: it determines not just who keeps new earnings, but who’s on the hook for new debts.
Property Acquired Outside California
If you and your spouse earned property while living in another state and then moved to California, that property may be treated as quasi-community property. The concept applies to anything acquired while living elsewhere that would have been community property if the acquiring spouse had been living in California at the time.13California Legislative Information. California Family Code FAM 125 – Quasi-Community Property In a California divorce, quasi-community property is divided the same way as community property. This prevents a spouse from shielding assets earned in a common-law state simply by moving to California before filing.
Federal Tax Consequences
Community property status affects how income is reported on federal returns and creates a significant tax benefit when a spouse dies.
Reporting Income on Separate Returns
If married California spouses file federal returns separately, each spouse must report exactly half of all community income, including wages, business profits, dividends, interest, and rents from community property. Each also reports all of their own separate income. Both returns must include Form 8958, which shows how income was allocated.14Internal Revenue Service. IRS Publication 555 – Community Property This applies even when only one spouse earned money during the year. Getting the allocation wrong on a separate return can trigger IRS adjustments and penalties.
The Double Step-Up in Basis
This is arguably the biggest financial advantage of Section 760, and many couples don’t know about it until it’s too late to use it. When one spouse dies, the surviving spouse’s half of community property, not just the deceased spouse’s half, receives a new cost basis equal to fair market value at the date of death.15Office of the Law Revision Counsel. United States Code Title 26 Section 1014 – Basis of Property Acquired From a Decedent In separate-property states, only the deceased spouse’s half gets that adjustment.
Here’s the practical effect. Say you and your spouse bought stock for $50,000 during the marriage, and it’s worth $500,000 when your spouse dies. In a separate-property state, only half of the appreciation is wiped out for tax purposes, so selling the stock would leave you owing capital gains tax on roughly $225,000 of gain. In California, the entire $500,000 value becomes your new cost basis. Sell it the next day, and you owe zero capital gains tax. For couples with highly appreciated real estate or investment portfolios, that can save hundreds of thousands of dollars.