- Nine U.S. states observe community property law, where marital assets are considered equally owned by both spouses.
- In a divorce in these states, community property assets are typically split 50-50, unless there are exceptions such as a prenuptial agreement.
- Living in a community property state can affect your taxes and estate planning.
When you get married, you're not only making a personal commitment but also a legal one. And depending on where you live, that legal commitment could involve jointly sharing finances — ranging from your income to your investments to your debts. This is especially true if you live in a community property state.
Even if you don't share a bank account with your spouse, or if there are some disparities like you earn more than your spouse, the rights and responsibilities regarding your finances could be equally shared if you live in one of nine community property states in the U.S.
That said, there are exceptions, including for assets you acquired before the marriage, as well as if you move from a non-community-property state to a community property one.
Here, we'll take a closer look at what community property means and how community property states could affect your finances.
What are community property states?
In community property states, marital assets and debts incurred by either spouse during the marriage are divided 50-50. The specifics depend on the legal framework of the state, but for the most part, any financial assets or liabilities acquired while married are considered jointly owned — even if the other spouse had no direct involvement, such as if one spouse buys a car with their savings and signs for it themselves. This community property is also typically equally divided as such in the event of a divorce or death.
That said, some property is considered separate, including property owned before marriage, as well as gifts and inheritance acquired by one spouse during the marriage.
States with community property laws
The nine states with community property laws are:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
Also, residents of Alaska can opt in to a community property agreement.
Spouses can also have "quasi-community property" if, at the time they were acquired, the couple lived in a non-community property state but later moved to a community property state. In that case, after a divorce or death, the quasi-community property is often still treated as community property, but depending on state law, there could be exceptions. In that case, the property might be divided based on what a court or arbitrator deems to be an equitable distribution.
Also, even in community property states, a prenuptial or postnuptial agreement can potentially prevent some assets from being considered community property and could instead belong to one spouse.
Contrast with common law property states
Non-community-property states are considered common law property states, meaning property is generally owned by the acquiring spouse. If you live in a state that doesn't observe community property law and you and your spouse can't agree on how to divide your marital assets during a divorce, then it's subject to equitable distribution. This means everything (except for pre-marital assets, or gifts or inheritances from during the marriage) is divided "fairly" at a judge's discretion, taking into account factors such as each person's earning potential or income, financial needs, and personal assets.
It's possible that a judge in one of the 41 equitable distribution states will decide to split the assets 50/50 anyway after taking a variety of factors into account, but it's not a given. And even so, couples are generally encouraged to arrive at a settlement agreement before a judge has to weigh in. Aside from dividing property, there are also alimony and child support payments to consider.
To protect personal assets regardless of where you live, couples can set up a prenuptial agreement, which establishes terms for a division of assets or continued financial support in the event of a divorce.
How community property works
Community property largely means that marital property is owned 50/50, but there are some nuances:
Separate property
In community property states, separate property is considered to be assets or debts acquired before the marriage, after a separation, or gifts and inheritances acquired during the marriage.
Community property
In contrast to separate property, community property generally involves equal ownership of any assets or debts acquired during the marriage, such as income, real estate, vehicles, and investments. You don't have to do anything special to make property jointly owned — in a community property state, even if your spouse doesn't sign paperwork for an asset like real estate, it's generally considered to be jointly owned.
Division of property in community property states
In community property states, the rules for using and dividing community property primarily include the following:
During marriage
During a marriage, both spouses generally have equal rights to community property, so they can jointly manage and control it. For example, one spouse may not exclude the other spouse from living in a home due to one spouse purchasing it if the home is considered community property.
Divorce
Upon divorce, community property assets — including real estate, income, cars, furniture, investments, and retirement accounts — typically get divided between the former spouses equally. Even debt is considered community property if incurred during the marriage, and both spouses could be equally responsible to assume half the debt in a divorce.
However, there can be exceptions, such as due to a prenup. State law may also provide exceptions, such as how real estate acquired prior to moving to a community property state might be divided based on the laws where the real estate is located.
Death
In the event one spouse passes before the other, the surviving spouse typically retains their claim to 50% of the community property. Often the surviving spouse can lay claim to the remaining share, but it's possible that a will, for instance, could dictate that the deceased spouse's share transfers elsewhere.
State law can affect the surviving spouse's ability to acquire the deceased spouse's share, but typically, if someone sets up a Right of Survivorship agreement before passing in a community property state, they can pass on their 50% share to the surviving spouse without having them go through probate court. However, exact rules and processes depend on state laws and the legal agreements set up beforehand.
Financial implications of community property
If you live in a community property state, it's important to carefully consider the financial implications, such as:
Debt responsibility
Typically, both spouses are responsible for debts incurred during the marriage, regardless of whether you both incurred them or only one person signed for them. However, there are exceptions, such as if it can be proven that one spouse incurred the debt only for their own use/gain. But if that involves something like credit card debt used to pay for ordinary expenses, even if you were unaware of your spouse's debt you may have participated in using that debt and thus are jointly liable.
Tax considerations
Community property can also affect taxes. For example, if your income tax filing status is married filing separately, you still generally have to divide income 50/50 when filing each return, so that could remove potential advantages to this filing status. Also, other taxes like property taxes for real estate that's community property are generally the joint responsibility of both spouses.
Estate planning
Estate planning in community property states is important to consider before you pass away. Generally, community property law involves the surviving spouse retaining their 50% stake in community property, and it's often easier for them to acquire the remaining share without complex probate processes, but it's important to have the right legal documents in place first. Consider speaking with a financial advisor or estate planning attorney to help ensure your wishes are carried out as intended.
FAQs about community property states
Can we opt out of community property laws?
No, you generally cannot opt out of community property laws. The only state where you can opt in, and therefore opt out of community property laws is Alaska. However, in community property states, you may be able to avoid some community property rules via a prenuptial or postnuptial agreement that potentially overrides community property laws.
What if I move to a community property state from a common law property state?
If you move to a community property state from a common law property state, marital assets could be considered quasi-community property and then essentially treated as community property, but in other cases, assets acquired while living in a common law property state still fall under common law. Consider consulting an attorney for guidance specific to your situation.
Do all community property states have the same laws?
No, not all community property states have the same laws. They differ slightly, although the general concept of joint ownership is the same.
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