Property Division in Community and Non-Community Property States
Depending on where you live, your marital property may be divided in different ways in the event of a divorce. In this article, we explore state-specific examples that illustrate the differences between community property states and equitable distribution states.
But first, let’s focus a bit more on property division. Although it may not be on the forefront of your mind when you decide to split from your spouse, it’s a big issue in divorce.
Property division in divorce
Getting a divorce involves much more than just ending your marriage. You and your spouse must decide how to divide your property. If you don’t decide for yourselves, a court will decide for you. Most couples feel it’s in their best interest to work together to divide marital property amicably.
What is marital property? It’s all of the assets, property, and money acquired during a marriage. Marital property is subject to distribution per your state’s guidelines if you and your spouse cannot agree on how to divide everything up.
The distribution process varies by state. Some states are community property states; others are equitable distribution states.
There are nine community property states:
- New Mexico
Every other state is an equitable distribution state. Let’s take a look at what these terms mean.
Community property states
Community property states divide marital property 50/50. In certain circumstances, courts can waver from that 50/50 split when one spouse engaged in an activity to hurt the other spouse. In most cases, however, divorcing couples in community property states split their marital property down the middle.
Equitable distribution states
Equitable distribution states take a different approach, splitting marital property in a fair and equitable manner. This may mean an even split, but it doesn’t have to be an even split. Courts in equitable distribution states are more concerned with fairness than equality.
What is considered to be community property?
In the nine U.S. states listed above – plus Puerto Rico – marital property is community property for purposes of asset division during divorce. Both spouses equally own every piece of marital property, so the assumption is that every item should be divided equally.
Think of community property as anything you and your spouse own together. A house. Car. Bank accounts. These are items that, if you live in a community property state, must be divided equally.
Of course, a judge won’t ask you to divide your car in half. But if your spouse keeps the car, the judge may require your spouse to pay you half of the present value of the vehicle. In this way, the car is split equally.
What is considered to be separate property?
As previously discussed, marital property is any asset or debt acquired during the marriage. However, there are exceptions to this rule. If you received an inheritance during your marriage and never commingled it with your marital assets, you may be able to claim an exception for the inheritance and keep it separate from your marital property and from division during divorce.
This rule applies to both community property and equitable distribution states. Other examples of separate property include:
- Property acquired prior to marriage
- Gifts and inheritance
- Property acquired after the date of separation
Date of separation
Let’s take a deeper dive into that last bullet point: property acquired after the date of separation.
Your date of separation is important because it creates a date when you and your spouse no longer intend to remain married. Property and debt acquired after this date will be considered separate property even though you’re still legally married.
If you and your spouse signed a prenuptial agreement before getting married, any property listed as separate property in that agreement would retain its separate status. This is another tool to help you keep important familial assets and other items safe from distribution during divorce.
Property division in a community property state
Living in a community property state, your marital property is subject to 50/50 division during your divorce proceedings. If you and your spouse cannot agree on how to divide your property, a judge will get involved – and they will be less concerned with you getting what you want and more concerned with splitting everything down the middle.
They do this by first classifying your property as marital or separate. You may have to prove some items are separate, so prepare to supply your judge with evidence.
Once a judge determines what property is separate, they’ll look at your marital property and divide it equally. For most couples, the largest asset they own is a house.
Let’s examine how a judge in California (the largest community property state) might divide your marital home. Because you cannot literally split a house down the middle, a judge might require you to sell the house and split the proceeds equally. Sometimes, divorcing couples want to sell the house and cut all ties, so this might even be a preferred option. It could give you a decent chunk of money to make a down payment on a new place.
If you want to stay in the marital home, you could buy out your spouse. Say your house in San Diego is worth $800,000, and you have $200,000 left on your mortgage. You could assume the rest of the mortgage and pay your spouse $300,000. Why $300,000? Let’s look at the math:
- $800,000/2 = $400,000 representing the property value for each of you
- $200,000/2 = $100,000 representing the debt still owed by each of you
- $400,000 - $100,000 = $300,000, the amount you would owe your spouse to keep the marital home
In some cases, a judge may allow – or even require – you and your spouse to continue owning the marital home together, even after your divorce is finalized. Judges often do this when a couple has children to create a stable environment for the minors.
In community property states, judges try to split your marital property so each of you receives 50% of the property. This may mean one of you gets the marital home while the other receives more cash, but you’re essentially splitting the value down the middle.
Property division in a non-community property state
In equitable distribution states, the process for determining marital versus separate property is the same. Where this process differs is in the distribution of marital property. It won’t always be a 50/50 split, but it will be fair.
State laws provide guidance, but ultimately, what’s “fair” is up to the judge. Factors such as the following may be considered:
- The total debts of the marriage
- Whether one spouse contributed more financially to the marriage
- Both spouses’ earning potential after divorce
- Tax consequences of property division
- How much each spouse contributed to the marriage in non-economic ways
- Any bad acts by one spouse
Let’s look at the house example again. This time, the house is in Denver. If you’re the primary breadwinner of the marriage and you and your spouse agree you will keep the home, the judge may require you to assume the entire mortgage and still pay your spouse a fair amount to buy them out. Why? Because of your superior financial position, this may be a fair distribution.
The distinction between marital property and separate property can get confusing. If you commingle separate property, it may be subject to distribution – even if you didn’t intend for that to happen.
What happens to commingled separate property?
In most cases, commingled separate property becomes marital property. If you receive an inheritance of $100,000 and put the full amount into your marital bank account, you may argue that it’s still separate property. However, once you use those funds to purchase marital items, it’s no longer separate property. Essentially, if your separate property cannot be distinguished from marital property, it’s no longer separate property.
At Hello Divorce, we’re committed to helping our clients with all aspects of divorce, from the legal to the spiritual. If you’re struggling with questions about property division or need legal guidance, contact your account coordinator (if you’re already a member), or schedule a free 15-minute phone consultation to tell us about your situation and learn what we can do to help you.