If you're going through a divorce or thinking about it, it's essential to know about community property. When a married couple splits up, they must divide their belongings and assets. These can include valuable things like cars, furniture, artwork, and houses. It can also involve intangible assets like stock options, bonds, and legal rights. The divorce process may also consider debt in the division of property.
In some states, property acquired during the marriage is part of the “community" and is often split 50/50 in cases of divorce. Community property is also known as marital property. How the states treat community property will determine what happens to debt or assets upon divorce.
Community Property Laws
Absent a prenuptial agreement or postnuptial agreement, the state law where you file for divorce will dictate how a court divides assets. States have adopted two approaches for dividing assets during divorce proceedings. State laws determine whether courts divide assets under community property or equitable distribution.
Nine states (and Puerto Rico) have community property laws for the division of assets. These states include:
- New Mexico
These states divide assets and debt "equally" (50/50). Both spouses have an equal interest in the property and are entitled to an equal share.
The other states (except Alaska) follow equitable distribution. A judge decides what is equitable or fair by considering many different factors. Fairness, not equality, is the goal of equitable distribution.
Alaska is unique in that it allows divorcing couples a choice.
If you're getting a divorce in a community property state, it's essential to know how this can affect your money and legal rights. Keep in mind that you and your former spouse can always reach a settlement agreement to divide property through mediation.
Community Property vs. Separate Property
In most cases, property obtained during a marriage is community property. This means both spouses have property rights to assets acquired in the marriage. Assets include things like income, real estate, investments, and personal belongings.
Examples of community property may include:
- Wages earned by either spouse during the marriage
- Home and furniture purchased during the marriage with marital earnings
- Interest income earned by business investments and operations
- Mortgages and the family home
- Liabilities or debts incurred during the marriage
- Retirement accounts
Separate property, on the other hand, is that which was owned prior to the marriage. Separate property is non-marital property inherited or received as a gift during the marriage and anything either spouse earned after the date of separation.
Note: If only one spouse's name is on the title, it does not automatically make it separate property.
Examples of separate property may include:
- Separately funded bank accounts
- Inheritances acquired during a marriage, if held separately
- Gifts to either spouse
- Personal injury proceeds
- Any property acquired after the dissolution of a marriage
Courts have also defined some property as “partial" or “quasi" community property. Separate property can become marital property during the marriage. Co-mingling and other factors can reclassify property in a divorce.
Factors a Judge May Use to Determine Property Division
A judge considers many factors when dividing assets in divorce proceedings. The three primary factors are 1) the earning capacity of each spouse, 2) which parent is the legal caretaker of the children (if any), and 3) whether fault grounds such as adultery or cruelty exist.
Therefore, even in community property states, property may not always be divided 50/50. Instead, courts will look at the following factors to determine if a disproportionate division of property is necessary:
- Marital Fault: One spouse may receive more of the marital assets if one spouse is more at fault for the divorce (such as adultery, cruelty, etc.)
- Loss of Continuing Benefit: Whether one spouse will lose out on a benefit they would have if the marriage continued
- Disparity of Earning Capacities: Income gaps, earning capabilities, and business opportunities may influence the division of property. For example, the court may award spousal support if there is a large disparity in income
- Health and Physical Conditions: Whether the physical health or condition of the spouses may affect the division of property
- Age Differences: Whether there is a disparity in the ages of the spouses which may affect one's ability to work or receive retirement benefits
- Size of Estate: The size of the estate can affect the division of property. Generally, the larger the estate, the more the court may reward a 50/50 division
- Anticipated Inheritances: Whether one of the spouses stands to receive a large inheritance
- Gifts to a Spouse: Gifts are usually converted to separate property after a divorce
- Custody of Children: A spouse who gains primary custody of children under 18 may affect the division of property
Learn More About Community Property From a Divorce Attorney
The number of legal issues surrounding a divorce process can be overwhelming. Property issues, alimony, custody, child support, division of retirement benefits accumulated during the marriage, visitation rights, and other legal matters all must be handled carefully. Finding the right divorce lawyer is key. Contact an experienced local divorce attorney near you today.