By: Minh Luong and Serena Junejo
In the case of death or divorce, a couple’s assets are divided based on the laws of their state. Most states follow equitable distribution law, where property is given to the purchaser or “rightful owner” when a marriage ends. However, in community property states, all property acquired during a marriage is split equally between both parties by default. In these states, it is important for couples to have written acknowledgement defining which items are separate property.
What is Community Property?
Community property is any property, debt, or income generated during a marriage. It belongs equally to both spouses in community property states.
The three types of community property are:
- Property acquired during the marriage, while living in a community property state
- Assets both parties have formally agreed to be community property
- Any property that cannot be identified as separate property
Community property law is often referred to as the 50/50 split law. In the case of a divorce all property is valued, and each spouse receives a 50/50 split of the valuation, assuming the parties do not settle on another deal. When one spouse dies, most debts and property are transferred to the surviving spouse.
Where does Community Property Law Apply?
Fewer than 20% of US states have community property laws. These states include California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Alaska, South Dakota, Tennessee, Puerto Rico, and Guam allow couples to decide whether they want to use community property laws or equitable distribution laws.
What is Separate Property?
Separate property belongs to one party. In community property states, this includes:
- Property owned before the marriage
Not including the family home. If one partner owned the family home before their spouse moved onto the property, it may still be considered community property.
- Income earned while living in a non-community property state
- Debts from before the marriage, and student loans from before and during the marriage
- Property received as a gift or inheritance to one person
- Property bought with separate funds or acquired in exchange for other separate property during the marriage
- Property converted from community property to separate property
This requires a formal agreement per state guidelines.
Exceptions to Community Property Law
Any prior agreement, such as a pre-nuptial agreement, will always trump common property law. This was famously seen in the 2010 McCourt divorce. Jamie McCourt signed a post-nuptial agreement and later a settlement, stating that the Los Angeles Dodgers belonged to her husband Frank. She attempted to fight the agreement, citing community property laws and that the value of the property changed since she signed the agreements. The judge ruled in Frank’s favor, marking a monumental common property decision.
Couples living in community property states should carefully consider how to categorize their assets. For help dividing property in the case of a divorce, contact one of our experienced family law attorneys.