community property states

Community Property States

Community Property States

Hello friends. Welcome to solsarin. Here today’s discussion is about “Community Property States”. Please stay with us until the end of the discussion and then share your idea.

 

Community Property States
Community Property States

 

What Is a Community Property State?

A contested divorce must rank as one of the modern world’s most grueling experiences, but in the U.S., nine states have tried to ease the trauma by passing community property laws. In these so-called community property states, couples are required to split equally all assets acquired during their marriage. Period. The aim is to ease the squabbling over who gets what, and how much of it, by having the law dictate the divide.

The nine states are:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Divorce laws vary by state, with some leaning more toward the community property concept. But these nine states are the only true community property states as of June 2021.1

Three other states—Alaska, South Dakota, and Tennessee—have an “opt-in” community property law that allows such a division of property if both parties agree.2

Registered domestic partners who live in California, Nevada, or Washington are also subject to community property laws.

Understanding Community Property States

What does community property encompass, exactly?

First, it covers anything earned or acquired by one or both parties during the marriage while they lived in the community property state. That includes all earned income (called community income), real or personal property paid for with community income, and funds in retirement and savings accounts. Debts are community property, too, and they are subtracted from the total to be divided.

Community property does not include assets owned by either spouse prior to the marriage or acquired after a legal separation. Gifts or inheritances received by one spouse during the marriage are also excluded.

Responsibility for any debts that date from before the marriage is not shared. And if you purchased property with a combination of community and individual funds, only the part bought with community funds is considered shared.

Broadly speaking, a divorce court in a community property state will split all other assets 50/50 unless both parties agree on another arrangement. In many cases, this requires that any joint property be sold so that the former partners can split the proceeds.

What Does Community Property Mean?

To understand community property states, it’s helpful to also know about equitable distributions. The majority of states follow this rule, which states that any property acquired during a marriage belongs to the spouse who acquired it. There’s no predetermined rule for dividing jointly owned assets like a home, vehicle or bank account. Divorcing spouses and their attorneys may still attempt to work out a fair agreement for divvying up assets or debts. However, the final division must be court-ordered.

In a community property state, the rules are different. Generally, both spouses can make an equal ownership claim to all income and assets acquired during the marriage. So, following that rule, any bank accounts, homes, real estate, vehicles or other assets that were accumulated during the marriage would belong to both spouses, regardless of who actually earned the income or purchased an asset.

The same rule goes for debt. If you and your spouse have credit cards, car loans, mortgage loans or other types of debt, then community property laws hold you both equally liable for them.

 

Community Property States
Community Property States

 

Which States Use Community Property Laws?

As of 2020, there are nine states where community property laws are observed. They go as follows:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Additionally, some states actually allow married couples to opt into community property rules. Those states are Alaska, South Dakota and Tennessee. In each state, you and your spouse have to create a community property agreement specifying which assets or debts should be considered equally shared. All three states also allow couples to establish a special trust to hold assets that are treated as community property.

There are a few exceptions, however, that could result in a different division of assets. An exception may apply if:

  • You or your spouse misappropriates community property at any time before the divorce is finalized
  • You or your spouse incurs a tort liability that’s not based on any activity that benefits either of you during the marriage
  • One of you receives a personal injury settlement – those amounts are owned only by the spouse who received them in a divorce
  • You or your spouse has educational debt; it’s kept separate after the divorce
  • Your jointly held debts exceed your assets here (in that case, assets and liabilities are divided in a way that’s designed to protect the interests of your creditors)

Arizona

Community property is recognized in Arizona and is classified as all property acquired by either spouse during their marriage except if one spouse acquires a gift or inheritance or property acquired after a divorce, legal separation or annulment. Additionally, real and personal property owned by one spouse before the marriage and any rent, profit or increase in the value of that property is classified as separate income. Property purchased by a married couple who lived in a non-community property state is considered by law in Arizona as quasi-community property and shall be fairly and equitably divided by the court. Dower and curtesy are abolished in Arizona.

California

California is a community property state mandating a 50/50 split upon divorce on all income received by either spouse during the marriage, all property, and all debt incurred during the marriage. In California, each physical object or asset does not need to be split equally; rather, the law requires that the net value of the assets received by each spouse must be equal (for example, one spouse might receive the house and the other might receive the family business). There is no estate by dower or curtesy. Gifts and inheritance are considered to be separate income as long as they are not deposited into a joint account.

Idaho

Community property is recognized in Idaho. In Idaho, property acquired during a marriage is jointly owned by both spouses, regardless of who purchased it or whose name is on the title. Community property also includes income earned during the marriage, including stock dividends, salary, investment interest, and retirement benefits. Idaho defines separate property as property acquired before marriage, gifts or inheritance, property one spouse bought using separate-property funds, money earned while one spouse domiciled in a separate-property state, or all property listed in a pre-/postnuptial agreement. Idaho law states that separate property must be kept separate from other assets. Both dower and curtesy have been abolished in Idaho.

Louisiana

Louisiana is a community property state. Separate property in Louisiana specifically includes inheritance and gifts, damages or other indemnity awarded to a spouse in connection with the management of his separate property, assets acquired by the spouse with separate property or with a mix of community and separate property when the value of the community property used to acquire said assets is inconsequential in comparison with the value of the separate property used. IRAs and some retirement plans are considered to be community property, while other qualified retirement plans are governed by ERISA and are treated accordingly based on the participant and the designated beneficiary.

How Community Property Affects Assets and Debts Acquired Before Marriage

Community property laws specifically cover assets that are acquired after two people enter into a marriage. This means that any assets you brought into the marriage remain only yours if you end up getting divorced. But, it’s important to note that this only applies if you maintain separate ownership of those assets once you’re married. If you add your spouse to your bank account, for example, then it becomes subject to community property rules.

Debts in your own name that you had before getting married are treated the same way. So if you had $10,000 in credit card debt, it would still be your debt post-marriage. But, say you had a mortgage in your name for a home you own. You refinance the home and include your spouse on the new loan. That would automatically make it their debt as well.

 

Community Property States
Community Property States

 

How Do I Know If Something is Community Property?

There are many complex rules for determining whether something is community property or not. If you have concerns about what is considered community property, even if you don’t live in a community property state, you might wish to consult an attorney for more information.

What Happens If I Get a Divorce in a Community Property State?

If you live in a community property state and you get a divorce, everything you own that was acquired during the years you were married, from property to income to assets, will be split equally.

Are Inheritances Considered Community Property?

Inheritances can be considered “separate property,” even in a community property state, as long as the funds or property stay separate and do not go into a joint bank account, etc.

Is My Retirement and Pension Community Property?

Like all other assets, your retirement funds and any pension you earn will be considered community property, and the amount contributed and accrued during the marriage will be split equally.

 

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