If you live in one of the 9 states that have community property laws, it’s a good idea to know what the term means and how it applies to you.
Nine states observe community property laws: Arizona, California, Idaho, Nevada, New Mexico, Texas, Louisiana, Wisconsin and Washington.
Community property touches everything from personal property ownership to debt to divorce and inheritance.
That’s why understanding the ins and outs of community property law is essential. You can arm yourself with the information that will help you understand property distribution in your state.
Defining Community Property
Community property is everything a husband and wife own together. This typically includes all money earned, debts incurred, and property acquired during the marriage.
Community property states classify the following as a married couple’s joint property:
- Any income received by either spouse during the marriage.
- Any real or personal property acquired with income earned during the marriage. This includes vehicles, homes, furniture, appliances and luxury items.
- Any debts acquired during the marriage.
Under community property, spouses own – and owe – everything equally, regardless of who earns or spends the income.
Related: Special Warranty Deed Texas
What Stays Separate in a Community Property State
Broadly, separate property in a community property state includes:
- All property owned by a spouse prior to marriage.
- Property obtained by a spouse after a legal separation.
- 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, such as joint banking accounts).
Also, pre-marriage debts remain separate property. For example, educational loans acquired before a marriage wouldn’t become community property.
But separate property can transform into community property. For example, if a spouse who owns property before the marriage adds the new spouse’s name to the deed, that home becomes community property.
Common FAQs
What is Discovery in Divorce?
Discovery is a way of obtaining valuable information that is pertinent to a divorce case, such as on the children, assets, and debts, through depositions, written discovery, Subpoenas, and Inventory and Appraisements.
In Texas, both spouses must provide discovery within 30 days of entering into divorce proceedings.
What is Separate Property in a Divorce?
In order to qualify as separate property, one of the following must apply:
– You brought the property into the marriage with you and kept it separate throughout. However, if these assets are commingled or transmuted into joint assets, the classification of the asset can change.
– The property was given to you as a gift (in your name only) during the course of your marriage.
– You inherited the property (in your name only) during the course of your marriage.
Anything else will almost certainly be classified as community property.
See Texas Family Code – FAM § 3.001
What is considered Marital Property?
All possessions acquired by a couple during their marriage is considered marital property and subject to division after divorce in accordance to state law. Texas marital property laws recognize the legal concept of “community property,” which means all property and income is divided equally upon death or divorce. Of course, prenuptial agreements and other special orders may alter how marital property is split after a divorce.
See Texas Family Code – FAM § 7.001
When Unity Leaves Community
Rising divorce rates make community property division a reality as joint property becomes separate again. Community property laws rule in divorce court, splitting assets 50/50.
Aside from assets and debts, business interests and pensions, like 401k plans, also fall under community property. That means a soon-to-be former spouse is probably entitled to a share of your retirement.
In most divorces, community property is sold unless both parties can agree on property distribution. Such agreements typically only occur in uncontested divorces where couples decide on the divorce terms. These include everything from debt and asset division to child and spousal support. Uncontested divorces require a level of communication many divorcing couples can’t achieve. However, they do allow for a level of customization not recognized by community property laws.
Related: Post-Divorce Checklist: 8 Things You MUST DO After Your Divorce is Final
Death and Community Property
In non-community property states, laws prevent spouses from disinheriting their other halves. Most states allow a surviving spouse to receive a minimum of one half or one third of any property.
In the event of death, community property laws can be vital in determining who receives property. In any community property state, a surviving spouse is considered to own any property owned jointly or by the deceased spouse.
Get help with divorce: Texas Uncontested Divorce
The Spread of Community Property
Community property laws don’t just apply to couples living in one of the eight designated community property states. If one spouse lives or owns property in a community property state, those rules could determine your future. And Wisconsin, while not officially a community property state, has laws so favorable to married couples that it verges on community property status.
Like most laws, community property has its critics and defenders. How people perceive it often hinges on where they’re standing. But whether you see community property as a savior or a hindrance, being informed is the best defense.
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