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While the majority of states require that assets be distributed in an equitable division upon divorce, community property states view all property that was accumulated during the marriage to be the equal property of both spouses.
Community Property States
Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin are community property states. All others are equitable distribution states. However, Alaska allows spouses to agree on having their marital estate divided through equitable distribution. Additionally, even if couples get divorced in an equitable distribution state, community property rules may still apply if either spouse had property in a community property state.
What Is Considered Community Property
All earnings, wages, tips, bonuses and commissions are considered the equal property of both spouses, even if technically earned by one of them. Additionally, property that is purchased with these earnings and debt that is incurred during the marriage is also considered community property. The identification of property as community property commences on the first day of the marriage.
What Is Not Considered Community Property
Unless there is an agreement to the contrary, typically property that was owned by one spouse before the marriage is not considered property. Likewise, property that is gifted to one spouse or inherited by one spouse is not considered community property. Additionally, after a couple legally separates, all property and income acquired after this point is typically considered separate property.
Commingled Property
A spouse may choose to transfer ownership of separate property to marital property. He or she may do this by titling the asset in the other spouse’s names or adding the other spouse to the title. Additionally, spouses may commingle separate and community property together, such as by comingling funds in a bank account that came from separate property together with marital funds. If the property has become so mixed that it can no longer be identified as separate property, it can be considered marital property.
Pension Plans and Retirement Accounts
A person’s pension plan can also be subject to community property standards. One way that these plans are dealt with are by providing the other spouse with a certain percentage of the pension check that the retired employee receives. The percentage is often dictated by the number of years that the spouses were married in comparison to the total number of years that the employee participated in the pension plan. In cases involving pension plans or retirement accounts, a qualified domestic relations order may be made by the family court judge. This is a court order regarding the employee’s retirement plan that requires the employer to comply with the order’s terms. In other cases, the employee may decide to provide the other spouse with a one-time lump-sum payment that represents his or her share of the community property portion of the plan.
Business Assets
A person’s business is also considered in the valuation and division of community property. If this business was started or developed during the marriage, there is a community property interest in that business. When valuing this asset, the goodwill of the business is assessed. This factor is based on the business’ name and reputation. Special accountants or appraisers may be retained to help determine the value of the business.
Educational Degrees
Different community property states treat educational degrees and professional licenses. Some states require the licensed spouse to reimburse the marital estate the cost of acquiring the license or degree. Other states provide the other spouse with a right to a certain percentage of the greater earning ability of the licensed spouse.
Distribution upon Divorce
If a couple gets a divorce under the community property distribution scheme, each spouse is usually entitled to 50 percent of the value of the assets and debts. Community property is often sold and divided equally between the spouses. Some spouses are able to reach an agreement regarding the distribution of their property and the goal is to ensure that each spouse winds up with half of the value of the marital assets and debts. Therefore, a spouse may wind up with the entirety of one asset, such as a home, but the other spouse will have other assets that are of approximately the same value.
Distribution upon Death
Community property laws also come into play upon one of the spouse’s death. When a spouse dies, his or her share of the community property passes to the surviving spouse. Whatever separate property the spouse had can be devised according to the terms of their will. If the couple had a right of survivorship tied to an asset such as a home or bank account, title automatically passes to the surviving spouse.
Source: HGLAW