Understanding divorce property division is an important element of any divorce. States divide marital property based on community property or equitable distribution laws. When property is community property, it is equally shared. In equitable distribution states, property is divided in a way that is fair but not necessarily equal.
In this guide, we’ll take a close look at community property states in 2024, so you can find out which rules apply to your state.
What Is Community Property?
In states that have community property laws, all assets and debts acquired during the marriage (with some exceptions) are considered community property and are equally owned by both spouses, regardless of whose name is on the item. If the couple divorces, each spouse is entitled to half of the community assets and debts.
The theory behind community property is that as spouses contribute to the marriage with income and maintain a household, they equally share in the accumulated assets and debts. Even a stay-at-home parent contributes to the success of the marriage and should be able to share in the assets equally.
As assets and debts come into the marriage, they are considered community property. The items that money buys are considered equally owned by both spouses. And just as both spouses are responsible for helping grow assets in the marriage, they are also equally liable for debts.
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Community property assets include:
- Earned income generated during the marriage
- Items purchased by either spouse during the marriage
- Retirement accounts that are created during marriage or the value of contributions made during marriage to pre-existing accounts
- Bank accounts and investments accumulated during the marriage
- Separate property that is transferred to joint accounts
- Separate property transmuted to marital property, such as when one spouse uses their own savings to help buy a family car in both names
List of Community Property States
Community property states are in the minority–most states are equitable distribution states where assets are not automatically divided equally. There are currently nine community property states.
The community property states are:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
Marital vs. Non-Marital Property
Spouses should understand the difference between marital property and non-marital (separate) property. Marital (community) property is assets and debts acquired during the marriage. Other than some exceptions described below, if it was acquired during the marriage, it is community property.
Separate Property Acquired Before Marriage
Most separate or non-marital property consists of assets or debts a spouse had when they got married. If a spouse owns it before marriage, it remains a separate asset or debt in most situations.
For example, a couple gets married on June 5, 2020. Prior to the marriage, Spouse A acquired $25,000 in student loans when they graduated in May 2018. This is non-marital property (debt) because Spouse B wasn’t in the picture when Spouse A took out the student loans. Should the couple divorce, Spouse A will still need to repay the loans; Spouse B is not responsible for the debt at all.
Separate Property Acquired During Marriage
Non-marital property also includes assets one spouse receives through gift, inheritance or personal injury award during marriage. If a spouse inherits a boat from their grandparent, for example, and the title is kept in that one spouse’s name, it is separate property.
Separate Property that Becomes Marital Property
In some instances separate property can become marital property. For example, if Spouse A enters the marriage with $50,000 and places that into a joint checking account or uses it as the down payment on a home bought during marriage by both spouses, those funds become marital funds.
Additionally, if a separate asset increases in value in part because of contributions by the other spouse (either monetarily or through labor), that increase in value of the separate asset becomes a marital asset. For example, if Spouse A owned a rental property before marriage, and during the marriage marital funds are used to pay for the mortgage or upkeep or if Spouse B helps work on the property, the increase in value after the date of marriage will be a marital asset.
Can a Couple Opt Out of Community Property Ownership?
A couple can opt out of community property ownership. This is done by having both parties sign a prenuptial agreement. The agreement outlines what is considered community property, and often states that what one party earns and buys during the marriage remains theirs should they divorce. Both parties should consult an attorney to fully understand their rights before signing a prenuptial agreement.
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Frequently Asked Questions (FAQs)
Should property be in both spouses' names?
It isn’t required by law that both spouses’ names be on the property title. Property acquired during marriage is still considered community property even if there is just one spouse’s name on the asset.
Can a married couple own separate houses?
It is possible that a married couple each have their own separate house that is not considered part of the community property household. This asset must be obtained before marriage or received as a gift or inheritance to the spouse during the marriage for it to be considered separate property. The couple could also designate the homes as separate in a prenuptial or postnuptial agreement.
