Community Property Overview

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.

States with Community Property Laws

Unless you have 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:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

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

During the divorce process, the court will classify everything you own (or owe) as community or separate. This characterization determines whether it will be subject to division.

What Is Community Property?

In most cases, the property you obtain during a marriage is considered 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

• Retirement accounts like an IRA, 401(k), 403(b) or pension plan

• A shared pet

Along with community assets, you and your spouse may also have community debt and liabilities. Credit card debt and student loans during the marriage are common examples, but they may be separate debts in some cases. Debt incurred during the marriage is usually shared.

How Does Separate Property Differ?

Unlike community property, spouses’ separate property will be excluded from the divorce. Separate property includes assets owned before 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. Commingling and other factors can reclassify property in a divorce.

You might pursue a legal separation before divorce. During this time, your legal separation agreement can specify separate and community property. Many divorcing couples also begin to create separate accounts to hold any new income they earn during the separation.

Factors a Judge May Use to Determine Property Division

A judge considers many factors when dividing assets in divorce proceedings. The three primary factors include:

• The earning capacity of each spouse

• Which parent is the legal caretaker of the children (if any)

• Whether fault grounds such as adultery or cruelty exist

Therefore, even in community property states, property may not always be divided 50/50. Courts still have discretion.

Courts 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

These factors are much more likely to influence the divorce award in equitable distribution states. Community property states generally default toward an equal split.

Learn More About Community Property From a Divorce Attorney

The number of legal issues surrounding a divorce process can be overwhelming. Property issues, alimony, and division of retirement benefits accumulated during the marriage must be handled carefully. Custody, child support, and visitation rights can also affect your division of property agreement or ruling.

Finding the right divorce lawyer is key. Contact an experienced local divorce attorney to discuss your personal property and other family law issues.