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Divorce, Community Property, Marital Property and Distribution

Marital Property – Who Owns What After You Get Married

Marital assets acquired by either spouse during the marriage is considered marital property. But different states’ property laws determine how a state divides marital property in a divorce.  The law can be complicated so it is important to consult with a trusted attorney.

What Is Marital Property?

Property gets broken into two categories: marital property and separate property acquired prior to the marriage. How each state treats and defines these legal terms depends on if it is a community property or common law state.
Marital property is any property newly acquired by the couple during their marriage. Common law states use this definition to decide how marriage assets get divided in the event of a death or a divorce.  

What is Separate Property?

Separate property is any property that:

  • was owned by the spouse before the marriage began.
  • was claimed by the spouse after a legal separation.
  • was received as a gift or inheritance during the marriage

Separate property is not usually subject to property division between parties upon the death of a spouse or during a divorce. These property laws may differ in each state depending on if you live in a common law or community property state.  You will need to consult with your attorney for your state.

Community Property State Law

Each state handles marital property,  separate property and property division a little differently. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin all have community property laws. These property distribution laws affect how marital property gets distributed, especially in divorce or after the death of a spouse.

What is Community Property?

In community property states, the court assumes that both spouses have equal ownership of any marital property – regardless of who owns it and how the assets were acquired. This means that what some states consider separate property does not remain separate in a community property state.
For example, say Tom and Sheri recently got married. After the wedding, Tom purchased a car, but only his name is on the title. In a common law state, only Tom would have a right to the car if they were to divorce. If they live in a community property state, Tom and Sheri will have joint ownership of the car regardless of whose name is on the title.
Marital property assets acquired might include:

  • Bank account
  • Investment accounts
  • Retirement savings
  • Money and property
  • The marital home
  • Vacation and investment properties
  • Vehicles, including luxury and recreational vehicles
  • Home furnishings
  • Artwork
  • Musical instruments

Community property also includes anything that may have started as separate property but has not remained separate property. This means that the assets have become so commingled with marital property that it cannot be separated.
For example, Chris purchased a home before the wedding. Only his name appears on the deed for the house. But, after the wedding, both spouses during the marriage contributed to paying for the mortgage, repairs, and maintenance of the home. In some  states, the marital home would then be community property and subject to division upon death or divorce.

Is Debt Considered Community Property?

Property also includes debts. Any debt accumulated by either spouse while married is the responsibility of both. Take John and Mary, a married couple. If John took out a loan to buy a second home, both parties are responsible for paying off the mortgage. If Mary runs up her credit card and fails to pay it, the credit card company can go after John for repayment.

The Marriage

Community property does not, however, cover debt acquired before the wedding. If you had student loans before getting married, those loans are your sole responsibility to pay back. The same is true of any debt accumulated after the spouses separate. However, in some states, the couple is still jointly responsible for all marital debt until the divorce is final, regardless of if they have separated.

What Happens to Marital Property in a Divorce?

Ideally, during a divorce marital property gets split 50/50 between the divorcing couple. However, this is not always the case.  Again the legal rules and other factors can be complicated so your attorneys can best advise you before you go to court.
When it is ‘just and right’ to do so, the court divides and may award a higher percentage share to one spouse. The court may consider several different marital property factors when deciding the division of marital property. These property factors include:

  • The needs of the children and each spouse
  • Spouses earning potential
  • Who was the primary caregiver to the children
  • The age and health of each spouse
  • Education level

These legal exceptions exist to protect the rights of a spouse who has fewer resources or lower earning potential, usually as a result of their role in the family. Community property states recognize that while each spouse’s contributions are different, they are no less valuable. These laws help ensure both parties leave the marriage on equal financial footing.
The law in some states may also award a higher percentage share of marital property or the marital estate to a spouse if the other is at fault for the breakdown of the marriage, i.e. abuse, infidelity, etc.
It is important to note that it is illegal to hide the true market value or undervalue an asset to prevent distribution during a divorce. A judge can punish this behavior by awarding a higher percentage of these assets to your spouse.

What Happens to Separate Property in a Divorce?

Separate property is not subject to division during a divorce. However, it can affect the division of community property. For the same reasons stated above, the court may rule to award a greater percentage of the community property to the other spouse to ensure an equitable distribution of assets. 
One exception to this rule is if you hide or undervalue an asset. In some states, if you hide or undervalue separate property, the court can still award part or all of the asset to the other spouse. If you have any questions, it is best to speak with a family law attorney who has experience with cases like yours.

What Happens to Community Property After a Death?

Typically, a spouse will inherit the deceased spouse’s community property in the absence of a valid will or other directive. However, the law on this subject can vary widely even among community property states or in the case of wrongful death.

What Happens to Separate Property After a Death?

What happens with separate property after the death of a spouse is a bit more complicated under the law. It also depends on what state you live in. Typically, a portion of the separate property will go to the surviving spouse. Any remaining separate property will go to any surviving parents, siblings, or children of the deceased. The percentage and what type of property passes to these individuals varies by the law in each state.  

Community Property State Law

Even if you do not live in a community property state, your property share may still be subject to community property law if you divorce.

Your Legal State of Residence Matters

Community property laws can take some of the stress out of dividing up your marital assets during a divorce. However, if you or your spouse lives in another state when you file for divorce, it can complicate the process. Understanding these laws and how they can affect your divorce can help. But first, you must know if you or your spouse live in a community property state.

Community Property Law States

Community property states are:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Other states have laws that are community property friendly, such as Alaska. They have an “opt-in” community property law, allowing couples to use these laws if both parties agree. You don’t have to marry for your property to count toward community property. A couple registered as domestic partners in California, Nevada, or Washington is also subject to community property laws.

Multi-State Property Distribution

The division of community property is a complicated legal process that only becomes more complicated when it involves multiple legal jurisdictions.  A lawyer is always necessary to navigate this legal process.
When it comes to divorce, it is important to note that while a state may not have jurisdiction over your spouse, they do have legal jurisdiction over your marriage. This means that regardless of where you or your spouse live, your legal state of residence can grant your divorce. They may not, however, have jurisdiction over all the property involved in your case.
The same is true of property equitable distribution after the death of a spouse. The state your spouse passed away in will have legal jurisdiction over the marital property owned in that state. However, property owned in other states will get distributed according to the law of those states instead.

What is equitable distribution?

Equitable distribution is a method of dividing property at the time of divorce. All states except for Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin follow the principles of equitable distribution.
Reference: https://www.justia.com/family/divorce/docs/equitable-distribution-faq/#q1
What does equitable distribution mean in a divorce?
Equitable distribution is a legal theory whereby marital property is distributed equitably in a divorce proceeding. Property assets are classified as either separate property or marital property. Most US states follow the equitable distribution theory.
Reference: https://www.investopedia.com/terms/e/equitable-division.asp   

When do States Community Property Laws Apply?

Community property laws will apply to any property owned in that state. For example, say you and your spouse married in Hawaii, but then moved to Arizona. While living there, you bought a house. The deed is in your name. Your spouse returned to Hawaii, a common law state, after you separated and you remained in the house in Arizona. Even if your spouse files for divorce in Hawaii, Arizona’s community property laws will still apply to the home in Arizona.
With the death of a spouse, the same is true. If your spouse owned community property or separate property in other states, the laws of those states will apply to how those assets get equitable distributed among the surviving family.

Protecting Your Property

It may seem odd to begin your marriage by talking about how it might end. A premarital agreement process can be a stressful one and sometimes ends marriages before they even start. But they can save a lot of time and hassle if you take the time to plan things out now.
Instead, think of a premarital agreement as life insurance for your marriage. Just like regular life insurance, you hope never to have to use it. But if you do, you’ll be glad you have that policy.

Prenuptial agreement Vs. Postnuptial agreement

The hard reality is this: If you fail to get a prenup or postnup, the death of your spouse or a divorce can cause serious legal and financial issues. These problems get even worse if your spouse has children from a previous marriage or owns property in multiple states. Here is a look at the differences between the two agreements and how they relate to community property laws:

Prenup

As the name suggests, a prenuptial agreement is a contract dividing your property before you get married. This document also outlines what property each spouse is bringing into the marriage. It will detail who keeps that property and any future marital property if you choose to divorce. A prenup can also outline spousal support and how property will get split in the event of a spouse’s death. In a community property state, this legal document will take precedence over state laws. This is assuming that parties were honest about their assets, and the contract is enforceable.

Postnup

A postnuptial agreement is almost identical to a prenuptial agreement. There is, however, one major difference. In a community property state, as soon as you say ‘I do’ any new property you acquire is community property. Because a postnuptial agreement comes after the wedding, it can limit your options for protecting your assets in the event of a death or a divorce.

Do You Need a Prenuptial Agreement?

A prenuptial agreement is an essential legal and financial tool for couples with significant assets or a large estate to set up prior to the marriage. A prenup will help protect your premarital wealth and preserve the inheritance you hope to pass on to your children. Without a prenup, the state will automatically award part of your estate to your surviving spouse according to that state’s laws.
If this is your first marriage, especially if you do not have any assets yet, you likely do not need a prenup. Though, you may still want to consider one. A prenup may be a good idea if you expect to receive a large inheritance or gift from a third party. A prenup will help ensure that your property remains separate from the community property.
A prenup cannot include anything relating to current or future children. These clauses usually end up not being in the best interest of the children, and so are unenforceable.

Do I Need a Legal Postnuptial Agreement?

In a community property state, any new property acquired by the couple during their marriage is community property. So waiting until after the wedding can limit what assets you can protect, and how. For example, in community property states it is almost impossible to completely disinherit a spouse of community property. Upon your death, the state will award one third of your separate property to your surviving spouse. The rest will go to any children or surviving family members. In a postnuptial agreement your spouse can waive their right to this property. This would allow you to pass all of your separate property to someone other than your spouse. This is most often used to protect an inheritance for children from a previous marriage. 
A postnuptial agreement can also be helpful if a couple is considering ending their marriage and getting divorce but wants to give it one last try. Dividing marital assets now can motivate couples to work things out but give them peace of mind that if they do divorce, the legal process will be a little less stressful.

Seek Professional Legal Help

If you have common questions about community property or property acquired, wills trusts, distribution of marital property, contact an experienced family law attorney. The law firm will help you plan how best to protect your financial future and divide marital property with a carefully crafted pre- or post-nuptial agreement. You can rest assured the attorneys will ensure the division of your community property will be fair and leave your separate assets intact.