I'm not an attorney or an accountant. Any information here is not to be construed as legal advice, and is for general information only. Having said that, here's the info I've gleaned from many hours of research about homesteads:
Homesteads are designed to protect the roof over your head from creditors who want the place you live in to pay off debts, liens, or judgments. They are not designed to protect you from debts you willingly incur, such as a mortgage or a credit card debt.
There are two kinds of homesteads in California, both discussed in the real estate law, and both the subject of many court cases.
The first type of homestead: This is called an automatic homestead, and protects your home (only one home, not vacation homes) from what is called an "execution sale," until your equity exceeds the amount of the homestead exemption (the amounts vary, depending on your age and marital status). An execution sale occurs when a creditor obtains an order from a court allowing them to sell your property in order to collect on a debt you owe. Since your home is automatically subject to the exemption, few execution sales occur in the state, except for properties in which there is a large amount of equity. In other words, you get to keep your home, free of predatory creditors.
However... If you want to sell your home voluntarily (when it's subject to an involuntary creditor's lien) and keep your equity (up to the exemption amount)
You will need a declared homestead. This type of homestead must be filed before a judgment lien is placed against your home.
If you want to voluntarily sell your home after a lien has been placed against it (often as an "abstract of judgment"), you must have the second type of homestead exemption, which is known as a declared homestead. A declared homestead is simply a recorded document that identifies the property you live in as your one homesteaded property, the home you live in when you file the document with the county recorder where you live. You can obtain the forms from a real estate broker, if you need them, and sign them in the presence of a notary, take them to the County Recorder's office, and have them recorded. The total cost for such a filing is typically less than $50, and it's easy to do yourself. Once you have filed that declaration, it's in effect permanently, unless you sell the property, or file a document known as an "abandonment of homestead." However, you MUST file this type of homestead prior to the recording of a judgment lien (known as an "abstract of judgment."); filing afterwards does not help you. You do, however, still have the automatic homestead exemption to protect you from an execution sale.
When you have a declared homestead, your equity in your home is protected even if you decide to sell, up to the amount of the exemption. In addition, creditors will typically not challenge a declared homestead if it's filed before any judgment, or before the placement of another involuntary lien. there are a couple of exceptions, but they are things like taxes, and revenue and recovery liens from the family courts.