Community Property Overview
Community property issues can arise in divorce proceedings and after the death of a spouse. When spouses divorce or die, spouses are often left with the daunting task of splitting up property and proceeds that were acquired during the marriage. This can include items of value such as cars, furniture, paintings, and family homes, but may also include intangible assets (such as stocks, bonds, and legal title), and also debt.
In some states, property acquired during the marriage is considered part of the “community” and is often split 50/50 in cases of divorce. How the states treat “community property”, also known as “marital property,” will determine what happens to debt or assets upon divorce.
Community Property Laws
Community property is governed by state laws, and not all states have such laws on the books. Nine states (and Puerto Rico) have community property laws that determine how debt and property are divided in a divorce. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Such states typically divide property equally, whereas all other states follow equitable distribution, meaning that a judge decides what is equitable, or fair. Alaska is unique in that it allows divorcing couples to choose.
While each state determines how property is divided after a divorce, the laws may differ slightly on how it is divided. For example, some states, like California, divide debt and property “equally” (50/50), while other states, like Texas, will divide debts and assets “equitably.”
There are several factors a court will consider in states that apply the equitable distribution doctrine.Therefore, certain factors will often warrant uneven distribution of property or debt, even in community property states.
Because community property laws affect property and other valuable assets, they can have a profound effect on a spouse’s future when they are forced to share part of an asset which was thought to be separate property. Absent a prenuptial agreement between the parties, the state law in which the couple was married will dictate how property will be distributed.
What Constitutes ‘Community Property’?
Generally, property acquired during a marriage belongs to both spouses. This is especially true in states that have community property laws on the books. While not every state has such laws, property acquired during the duration of a marriage is distributed equally upon dissolution of the marriage.
Examples of community property may include:
- Wages earned by either spouse during the marriage
- Home and furniture purchased during the marriage with marital earnings (reword)
- Interest income earned by business investments and operations
- Mortgages and the family home
Separate property, on the other hand, can be classified as follows:
- Any that that was owned prior to the marriage
- Anything that was inherited or received as a gift during the marriage, and
- Anything either spouse earned after the date of separation
Examples of separate property may include:
- Bank accounts which are held separately
- 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. This includes property assets that would have been defined as separate property at the beginning or during the marriage, but that has become marital property because of co-mingling and other circumstances within the marriage.
Factors a Judge May Use to Determine the Division of Community Property
There are several factors a judge may use to determine how to divide property acquired during the marriage. The three main factors a judge will factor include 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 situations where a disproportionate division of property is necessary:
- Marital Fault: One spouse may receive more of the marital property if fault grounds for divorce were present (such as adultery, cruelty, etc.)
- Loss of Continuing Benefit: Whether one spouse will suffer the loss of compensation that they would have received by continuation of the marriage
- Disparity of Earning Capacities: Whether gaps exist between incomes, earning capabilities, and business opportunities that may affect the division of property
- Health and Physical Conditions: Whether the physical health or condition of the spouses may affect the division of property
- Age Differences: Whether there is disparity in 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
Get a Free Case Review with a Divorce Specialist
The number of legal issues surrounding a divorce can be overwhelming. Community property, 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 attorney is key. A great place to start is to immediately see an experienced divorce attorney for a free initial case evaluation to understand your situation and to begin to take necessary action.