Divorce in a Community Property State
Broadly speaking, community property is defined as everything a husband and wife own together. This typically includes money earned and debts incurred by either party, as well as property acquired by either party during the marriage. The roots of community property law are found in Spanish civil law; community property law was originally established in Spain to protect women in wealthy marriages. It is now only officially recognized in states which were once influenced by Spanish or Mexican rule, including Arizona, California, New Mexico, Texas, Nevada, Idaho, Washington and Louisiana.
In a community property state, community property is defined as all property and profits received by a husband and wife during the marriage. Separate property is an exception to this rule; this includes specific gifts to one spouse, inheritances, and property and profits clearly traceable to property owned before marriage. Even if one party earns more income through employment than the other during the marriage, community property recognizes an equal contribution to the marriage from both husband and wife. For this reason, under community property law, spouses are equally entitled to everything owned, and equally responsible for everything owed, regardless of who earns or spends the income.
Husband and wife each acquire a one-half equitable interest in everything that is labeled community property. A determining factor in whether a particular asset is community or separate property is the time of acquisition. Community property is usually defined as everything that the couple owns that is acquired during the marriage with the exception of separate property owned by either of them individually.
Community property states consider the following to be a married couple’s joint property:
1. Any income received by either spouse during the marriage.
2. Any real or personal property acquired with income earned during the marriage. This includes homes, vehicles, furniture, appliances and luxury items.
3. Any debts acquired by either spouse during the marriage.
Divorce terminates the community relationship in all community property states. A divorcing couple who lives in a community property state will ordinarily each receive an equal share of the community property regardless of how it is titled, and likewise each spouse will be responsible for an equal share of any marital debts.
Separate property is property that each individual brings into the marriage, in addition to anything that either spouse acquires by inheritance during the marriage.
Broadly speaking, separate property in a community property state includes the following:
1. All property owned by a spouse prior to marriage.
2. Property obtained by a spouse after a legal separation.
3. Any property received as a gift or inheritance during the marriage from a third party (as long as this property remains separate from community property, including joint banking accounts).
Also, pre-marriage debts remain separate property. For example, school and education loans acquired before a marriage would not become community property.
However, separate property can transform into community property during the marriage. By agreement or action the married couple can turn (transmute) separate property into community property, including by commingling community and separate funds in one account.
In a divorce, community property laws impact every financial aspect from personal property to debt. That is why understanding the specifics of community property law is absolutely essential when you are entering into a divorce. You must ensure that you are fully informed in order to understand property distribution in your state.
Tamara Hirsch, JD, LCSW