In the U.S., there are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
But what does living in a community property state mean, and how does it impact the division of property during a divorce?
It’s no mystery that divorce proceedings can seriously drain time, money, and well-being. That’s why several U.S. states enacted community property laws to counter some of the drama associated with divorce.
Community property law provides that any assets acquired during marriage are presumptively equally owned. Instead of each spouse being an individual owner, property and debts acquired after tying the knot belong to the “community,” meaning they belong to both of you.
The law is supposed to clarify “who gets what” and simplify splitting up property during divorce.
The flip side? You can also lose out on property that was paid for and used only by you or your partner (more on that later).
Plus, many couples may not even know about the state’s default 50/50 rule as they enter marriage.
There are nine true community property states, meaning you and your spouse have equal ownership of assets acquired during the marriage.
Keep in mind that laws vary considerably even within community property states, and certain states may still consider equitable division of property over a 50/50 split during divorce.
Community property states include:
Couples in domestic partnerships living in California, Nevada, and Washington are also subject to community property rules.
Additionally, there are three states where a couple can “opt-in” to community property laws by signing an agreement. “Opt-in” community property states include:
The major difference between community property and equitable distribution states is how they define property during marriage.
Community property law states consider any income, debt, or property purchased after marriage jointly owned by each spouse.
Conversely, equitable distribution states recognize individual property ownership after marriage.
For example, in a community property state, a motorcycle purchased by either spouse is considered community property.
In an equitable distribution state, the motorcycle belongs only to the spouse who bought it unless they explicitly put the other person’s name on it.
41 states recognize equitable distribution standards. In these states, a judge uses the concept of equitable distribution to determine property division during a divorce.
Equitable distribution is a legal rule that determines how property is divided by the court. The court takes into consideration various factors such as education, earning ability, job, financial needs, and health.
It recognizes that marriage is a partnership, and both spouses contribute emotionally, financially, and otherwise to acquiring and maintaining marital property and assets.
When a marriage ends through divorce or legal separation, the principle of equitable distribution seeks to divide the marital property and debts to reflect each spouse’s contributions, needs, and other relevant circumstances.
So, while the idea is to distribute assets fairly, they may be distributed unevenly.
Also referred to as marital property, community property encompasses all assets and property acquired during the marriage.
This contrasts to separate property, referring to anything owned before entering the marriage or solely purchased with separate property funds.
Community property can include any of the following:
Community property excludes gifts or inheritances, assets, and debts acquired before marriage, which remain separate property.
It may surprise you that your spouse can gain an interest or acquire a legal right or stake in your separate property.
Here are a few examples of how this could happen:
A prenuptial agreement is the only way to override community property laws effectively.
A prenuptial agreement is a legally binding document you and your spouse-to-be create before marriage. With a prenup, you can precisely define who is entitled to which property in the event of a divorce.
This effectively could supersede the 50/50 rule of community property law and empower you and your spouse to decide how to split your assets in the event of a divorce.
But there’s more to prenups than getting around your state’s default hidden community property rules.
One of the many significant benefits of a prenup is that you and your partner engage in meaningful discussions around financial and life goals pertaining to your marriage. These important conversations establish communication, clarity, honesty, and openness as pillars of your relationship.
Thus, a prenup is important for dividing assets in court and for discussing money and your future together.
Regardless of whether you think one methodology is more fair than the other, the fate of your property is wholly determined by the laws of the state where you reside.
For Californians, the only real way to take control of property and asset division during divorce is to lay it all out in a prenuptial agreement.
If you’re headed to the altar and looking for advice on how California law will impact your finances as a couple, don’t hesitate to reach out for a consultation call.
I bring decades of experience in community property law to help couples enter their marriage with peace of mind and get set up for long-term marital success.
Raymond Hekmat's practice of law has been devoted exclusively to areas of family law, including divorce, paternity, custody, support issues as well as prenuptial agreements, since earning his Juris Doctorate degree from Loyola Law School in 2009. He is admitted to practice law in California and is a member of the Los Angeles County and Beverly Hills Bar Associations.
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