What is community property?
UPDATED: January 30, 2020
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Community property is generally considered to be all property that the two parties acquired during the marriage or partnership and includes debts, physical property, financial instruments, and money. This means that community property includes bank accounts, retirement accounts, income, stocks, home equity, vehicles, furniture, mortgages, credit card debt, tax debt, and student loans. When two parties divorce in a community property state, all of the property acquired during marriage will be divided evenly.
Nine states are community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Puerto Rico is also a community property jurisdiction. In Alaska, two spouses or partners can make an item community property by forming a community property agreement or trust. The other states are common law or equitable division states. Community property is property that is jointly held by two individuals who are married or have entered into a legally binding civil union or domestic partnership.
Community Property Exclusions and Special Circumstances
States view community property as property acquired through the equal efforts of both parties. The idea is that without the combined efforts of both parties, the property would not have been acquired. Gifts, inheritances, and profits from property acquired before marriage are not community property.
A settlement related to an auto accident or work-related injury is, however, a special case. The amount of a settlement for a vehicle considered community property and lost wages are community property; whereas, typically, the amount of a settlement for pain and suffering to one party is not community property. However, the court may decide that some of the amount for pain and suffering is community property. Courts will usually consider many factors in these determinations, including the financial needs of both parties and whether the non-injured party cared for the injured party.
If a spouse or partner mingled money that the other party received for pain and suffering with community property, then that action made the money they mingled community property. An example would be a wife suffering an injury to her foot in an auto accident, and the husband using part of the settlement for her pain and suffering to pay off joint debt for a credit card purchase.
Dividing Community Property
Community property is split equally between the two parties. The concept of community property affects the decisions of judges and juries in family court, probate court, bankruptcy court, and tax court. In family court, the concept of community property is used to divide property and award alimony. If a party presents evidence that an item should not be considered community property, the court will look at how the property was acquired, who holds legal title to the item, how both parties treated the item during their marriage or union, and the reasons that the two parties disagree about this item.
In probate court, the concept of community property is used to determine the share of community property a surviving spouse or partner of a marriage or union will receive from the deceased spouse or partner. Typically, when a spouse or partner dies, all of the community property passes to the surviving spouse or partner. There are exceptions, which vary by state. Because divorce and dividing community property can be complicated, it’s best to consult with a divorce attorney in your area.