Either because of economic constraints or emotional ties to a house, many divorcing couples no longer want the home they purchased during their marriage. Inevitably, one spouse will ask, “If community property funds paid for my house, how much equity can I recover in the divorce?” Generally, if a house was purchased with community funds during the marriage, you would be entitled to a fair and equitable distribution of any proceeds, including any equity in your home. When most people hear fair, they think “fifty-fifty.” If you live in a community propertystate, you could most likely recover approximately half of the equity after the sale of the home. However, the family code in your state and the value of your entire community estate could also influence the amount of equity you eventually receive.
“Community property” is real or personal property acquired during marriage. Real property is real estate. Personal property is generally considered to be anything that is not real property such as a car, furniture, and jewelry; anything that is moveable. Each spouse has a one half interest in community property. This is in contrast to separate property which is property acquired before marriage or after the marriage ends. There are some exceptions to this general definition of separate property. For example, a gift or inheritance is separate property even though it was acquired during marriage. Separate property means that the spouse that owns that item independently of the community estate. For example, a car acquired before marriage would be owned solely by the spouse who purchased it. If that car had been purchased during marriage, it would be community property which means that each spouse would have a one half ownership interest in the vehicle, even if the title was in the name of only one spouse.
Since a spouse only has a one half interest in community property, that spouse can only dispose of that one half interest. With separate property, the spouse can dispose of their entire interest in the item since the spouse is the sole owner. An important caveat, however, is that the laws controlling community and separate property vary from state to state. Before you start disposing of property without notice to your spouse, consult a family law attorneyto see what you can sell without having to later reimburse the community part of your estate.
You should also visit with a family law attorney to see what your state considers community property. One issue that frequently arises is determiningwhether an item is separate property or community property. In order to determine whether an item is separate property or community property, a court will look to the source of the funds used to purchase the item. The character of the source determines the character of the item. In other words, if an item was purchased with separate property funds, it could be separate property. If the item was purchased with community property funds, it would be community property. If the funds used to acquire or purchase an item are from both separate and community property, the community would have a proportionate interest in that item. If the funds have been co-mingled and it cannot be determined whether an item is community or separate property, there is a rebuttable presumption that the item is community property.
With regard to your house and the amount of equity in the house, if the house was purchased with community property funds during the marriage, the house would be considered community property because the source of the funds determines the character of the item. Since the house is community property, each spouse would have a one half interest in the house and would have a one half interest in the equity. For example, if the equity is $100,000, each spouse would be entitled to $50,000 of the equity. Another factor to consider is the enhanced value of the house. If the value of the house increased due to improvements made during marriage, the enhanced value would represent community property and each spouse would have a one half interest in the value of those improvements. The spouses can agree to an unequal division of community property; a spouse can receive more than half the community property pursuant to an agreement with the other spouse. The agreement should be in writing to avoid future potential legal disputes.
Depending on the circumstances of your divorce and your community estate, the court could award you less than fifty percent in the equity. For example, you have a home that has $20,000.00 worth of equity. You and your wife also purchased matching Harley Davidson motorcycles during your marriage, which are valued at $10,000.00 each. In making a “fair and equitable” division of the community estate, the court could award the Harley’s to you and the entire equity in the house to your spouse. An attorney who specializes in family law in your area can give you a better idea of how your state’s laws apply to your situation and how the judges in your jurisdiction enforce those rules.