When it comes to divorce, where the divorce is filed matters a lot. Not all states treat divorce the same way, especially in matters of property division. Generally, states are classified as either equitable distribution or community property states. While the vast majority of states are equitable distribution states, some of the most populous states are community property states. Therefore, it is important to understand what community property means and why it has such a big impact during a divorce. Here are four things to know about community property.
Marital property is owned by both spouses
In community property states, most of the property acquired during the marriage is considered the property of both spouses. The community property that is acquired during the marriage can include wages, property, debts, and other assets and liabilities. Generally, it does not matter whose name is attached to specific assets or liabilities. Therefore, if only one spouse earns an income, that income is considered to be community property and owned by both spouses.
Community property is (usually) split 50/50
One of the defining features of community property is that in most community property states the marital property is divided equally between both spouses. In contrast, in an equitable distribution state a judge will try to divide property fairly, which, in some cases, may not necessarily be equally. There are, however, exceptions to splitting property 50-50. While Texas is a community property state, for example, courts there nonetheless divide property equitably rather than equally.
Most community property states are in the west
There are technically only nine community property states and the vast majority of them are in the west. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Additionally, Alaska allows people going through a divorce to choose whether to split property according to a community property or equitable distribution model. Although not a state, Puerto Rico also uses a community property system.
Not all property is community property
While community property is generally split evenly, it is important to understand that not everything owned by both spouses is pooled together as community property. Some property is classified as separate property and this property is not subject to division during a divorce. Separate property includes gifts and inheritances, property that was owned by either spouse prior to the marriage, and property that was acquired after the date of separation. However, drawing a line between community property and separate property is not always easy. For example, while an inheritance is considered separate property, if that inheritance is used to upgrade the couple’s home then the value of the upgrades will generally be included as community property.
How property gets divided during a divorce largely depends on where the spouses live at the time they choose to part ways. Whether one lives in a community property or equitable distribution state can have a major impact on a final divorce agreement and may lead to drastically different financial outcomes.