How Community Property Laws Affect Divorce and Legal Separation

The laws of the state where you live can play a significant role in dividing your property during a divorce or legal separation. This is particularly true for couples living in a community property state.

Nine states observe community property laws, meaning that any assets purchased or earned and debt incurred during marriage belong to both spouses equally.

Property Division

A divorce judge determines how a couple should divide their property. Typically, this means assigning each spouse a percentage of the value of all their assets (known as their marital estate) minus their debts. The judge may also consider crediting one spouse for contributions to their separate property to increase its value. Moreover, in Texas community property laws, the spouses l must share the responsibility of paying their debts.

If you own property separately before marriage, it remains your property even after marriage. Likewise, gifts to you from someone other than your spouse are usually considered individual property. However, buying something jointly after marriage with both your names on the title becomes marital property. So do funds that you deposit into a joint bank account.

In most cases, the judge will only make an exception to these rules when a spouse can show that it would not have been possible to acquire something without mixing or commingling the separate property with marital property. This is sometimes known as the “transfer doctrine.”

Regardless of the jurisdiction where your case is filed, it would help if you accurately listed all your assets and liabilities. Failure to disclose assets can result in the judge reopening your case and reevaluating the property division.

Property Transfers

In community property states, almost all assets and debts spouses acquire during the marriage are considered joint and equally shared by default. That means that if one spouse earned a bonus at work or took out a personal loan, the other spouse will typically be held responsible for paying back the debt in case of separation, divorce, or death.

There are exceptions, however. Some state laws allow the separate property to be characterized as community property if mixed with community property funds or other assets. This is called transmutation, and it can be intentional or unintentional. For example, if one spouse owned a certificate of deposit (CD) before marriage and the account was funded with separate property earnings and later paid down with community property income, the CD would be considered community property unless the different property portion could be traced.

Similarly, suppose a married couple purchases an antique collector car with their own and community property funds. In that case, the vehicle will be rebuttably presumed to be community property unless the deed predates. This is also true of retirement assets and pensions vested before marriage. The spouses may, however, choose to identify specific assets as separate property by signing a written agreement to do so or using a deed that explicitly marks the asset as such.

Prenuptial Agreements

The property laws of different states can significantly affect how assets are divided in the event of a divorce or separation. However, how a couple manages their finances and acquisitions can also have an impact. A prenuptial agreement, or prenup, in place before marriage can override the default state laws for dividing assets.

Generally, any assets or debts acquired during a marriage are considered marital property. This is true even if they are only in the name of one spouse or solely one partner’s property. There are, however, exceptions to this rule. Couples must understand the difference between community property and separate property to ensure they do everything correctly with their assets.

It is also essential to recognize that anything initially seen as separate property can lose its status as a particular property if it is blended in any way with other marital assets. Determining the exact line that individual and marital property has crossed can be challenging. For this reason, it is a good idea for people to think about the implications of community property laws before they decide to marry.

Spousal Support

One of the main issues in most divorces is how to divide up property. What the spouses get will vary depending on whether they live in an equitable distribution state or a community property state, what they brought into the marriage, and how those assets have been treated.

Even in community property states, dividing assets is more complex than splitting everything in half. A judge will look at each purchase and determine if and how it should be distributed. For example, a house may have significant sentimental value to one spouse. Taking it away could be devastating. In such cases, the judge might order the home to remain with the spouse and award them different assets in exchange.

Spousal support, or alimony, is meant to help a dependent spouse who has either made less money during the marriage or taken care of children instead of working full-time. The length of alimony payments varies by state, with judges looking at factors including need, ability to pay, the size of the marriage, the standard of living during the wedding, and other considerations.

Alimony payments are taxable income to the spouse who receives them and is tax-deductible for the spouse who pays them. In addition, depending on changing circumstances, most spousal support payments can be modified or terminated by either spouse.

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