Who Owns What in Marital Property?
Who owns what property in a marriage, after divorce, or after a spouse's death depends on whether the couple lives in a common law property state or a community property state. During marriage, these classifications may seem trivial, but in the unfortunate events of divorce or death, these details become very important.
Common Law Property States
Most states are common law property states. So, what does it mean to live in a common law property state? The term "common law" is simply a term used to determine the ownership of marital property (property acquired during marriage). The common law system provides that property acquired by one member of a married couple is owned completely and solely by that person. Of course, if the title or deed to a piece of property is put in the names of both spouses, however, then that property would belong to both spouses. If both spouses' names are on the title, each owns a one-half interest.
Example: If Wife buys a car and puts it only in her name, that car belongs to only Wife. If Wife buys a car and puts it in her name and Husband's name, then the car belongs to both of them.
Property distribution upon death or separation: When one spouse passes away, his or her separate property is distributed according to his or her will, or according to probate, without a will. The distribution of the marital property depends on how the spouses share ownership. If they own property in "joint tenancy with the right of survivorship" or "tenancy by the entirety", the property goes to the surviving spouse. This right is independent of what the deceased spouse's will says. However, if the property was owned as "tenancy in common", then the property can go to someone other than the surviving spouse, per the deceased spouse's will. Not all property has a title or deed. In this case, generally, whoever paid for the property or received it as a gift owns it.
If the couple divorces or obtains a legal separation, the court will decide how the marital property will be divided. Of course, the couple can enter into an agreement before the marriage, explaining how to distribute the marital property upon divorce.
Community Property States
The states having community property are Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin. Community property states follow the rule that all assets acquired during the marriage are considered "community property". Marital property in community property states are owned by both spouses equally (50/50). This marital property includes earnings, all property bought with those earnings, and all debts, accrued during the marriage. Community property begins at the marriage and ends when the couple physically separates with the intention of not continuing the marriage. So, any earnings or debts originating after this time will be separate property.
Any assets acquired before the marriage are considered separate property, and are owned only by that original owner. A spouse can, however, transfer the title of any of his or her separate property to the other spouse (gift) or to the community property (making a spouse an account holder on bank account). Spouses can also comingle their separate property with community property, for example, by adding funds from before the marriage to the community property funds.
Spouses may not transfer, alter, or eliminate any whole piece of community property without the other spouse's permission. A spouse can manage his or her own half the way he wishes, but the whole piece includes the other spouse's one half interest. In other words, that spouse cannot be alienated from his or her one half.
Separate property includes
- Property owned by just one spouse before the marriage
- Property given to just one spouse before or during the marriage
- Property inherited by just one spouse
Community property includes
- Money either spouse earned during the marriage
- Things bought with money either spouse earned during the marriage
- Separate property that has become so mixed with community property that it can't be identified
Example: Wife and Husband have been married for ten years. Wife works as a successful doctor and uses her earnings to buy a car. That car is community property, and both Husband and Wife own the car equally.
Example: Husband owns a valuable piece of antique furniture that he acquired before the marriage. Husband alone owns the antique as his separate property. The antique is not community property, because it was acquired before the marriage. If Husband wants to give his wife a one half interest in the antique, he may; then, the antique would be part of the community property.
Property distribution upon death or separation: When one spouse passes away, his or her half of the community property passes to the surviving spouse. Their separate property can be devised to whomever they wish according to their will, or via probate without a will. Many community property states offer an interest called "community property with the right of survivorship". Under this doctrine, if a couple holds title or deed to a piece of property, usually a home, then upon a spouse's death, title passes automatically to the surviving spouse, avoiding court proceedings.
If the couple divorces or obtains a legal separation, all of the community property is divided evenly (50/50). The separate property of each spouse is distributed to the spouse who owns it and is not divided according to the 50/50 rule. Sometimes, economic circumstances warrant awarding certain assets wholly to one spouse, but each spouse still ends up with 50% of all community property in terms of total economic value. This is most common regarding marital homes. Since it is not feasible to divide a house in half, often the court will award one spouse the house, and the other spouse receives other assets that's value is equal to half the value of the home.
Before the marriage, the couple may enter into an agreement that lays out how the marital property should be divided upon divorce.
Exceptions to the equal division rule:
- One spouse misappropriates the community property, whether before or during a pending divorce.
- One spouse has incurred educational debts. This is the same as separately incurred debt. On divorce, the spouse takes his or her GSL loans with him or her.
- One spouse incurred tort liability NOT based on activity for the benefit of the marital community.
- A personal injury award is community property during the marriage, but on divorce is awarded to the injured spouse.
- "Negative community" refers to a situation where the community liabilities and debts exceed the available assets to pay the liabilities and debts. Here, the relative ability of spouses to pay the debt is considered. The interest here is to protect creditors.
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