What Is a Community Property State?
A community property state is one that requires couples to split their assets equally in the case of divorce. Only the assets that were acquired during the marriage will be able to be shared in community property states. The purpose is to stop lengthy and complex divorce proceedings from taking up court time.
Which States Are Community Property States?
There are 9 community property states in the US:
- Washington
- Idaho
- Louisiana
- Wisconsin
- Arizona
- Nevada
- Texas
- New Mexico
- California
Each state sets divorce laws, which allow these 9 states to be community property states. There are also three states which are opt-in community property states. This means that if both parties agree, the law will equally divide the property. These opt-in community property states are Tennessee, Alaska, South Dakota.
California, Washington, and Nevada are also community property states for registered domestic partners.
How Do Community Property States Split Property?
Anything one or both parties earns during the period of marriage will be split equally in a community property state. This includes assets like property, retirement funds, earned income, and savings accounts. All debts incurred during the marriage will be paid before the community property is divided.
In a community property state, assets that each spouse owned before the marriage or after legal separation cannot be split. Inheritance or gifts given to one spouse or assets bought only with one spouse’s funds are also not split. Community property states also do not split responsibility for debts from before the marriage.
Generally, community property state divorce courts will split all assets equally unless the couple has a prenup or have another agreement. If there is jointly owned property, it will need to be sold so the proceeds can be split.
What Happens With a Prenup in a Community Property State?
The community property state will split the assets as per the prenup agreement. It will override any community property law as long as it is a legal agreement. A prenup is proof of an agreement the couple made prior to the divorce.
Community Property States and Domicile
If you live in multiple states, how can you determine if your divorce will be subject to community property state laws? It will be based upon your permanent legal residence or domicile. Also, consider where you vote and where you pay state income tax.
Do Community Property State Laws Apply If You Own Property in Multiple States?
It depends on where the funds used to purchase the property came from. If it was money earned in a community property state, then the property is split equally, regardless of whether the property is in a community property state or not.
If the money was earned in a non-community property state, then it will not need to be split equally, even if it is located in a community property state.
Do Community Property States Give Special Considerations?
Yes. If the married couple files separate taxes, then it may be difficult to figure out what is the individual property and community property. You should speak to a tax professional as well as a lawyer if this is the case. They will help you figure out what needs to be split and not in a community property state.