Community Property And What It Means For Debt And Assets

The treatment of marital property and debt are vastly different depending on whether or not you live in a community property state. While the majority of states use an equitable distribution system for determining what party is responsible for debt and entitled to property, 9 states use community property guidelines. These two different ways of looking at the marital estate can result in drastic differences in your divorce agreement, so read on to learn more about the division of debt and property in a community property state.

Community Property States

The property and debt in the following 9 states are considered "owned" by the community:

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

Please note that divorcing couples who are residents of Alaska have a flexible arrangement available where they can decide what property is to be designated either as community property or to use the equitable distribution model.

Marital Property

All property, including bank accounts, investment accounts, real estate, automobiles, jewelry, pets, art, etc, purchased during the marriage is considered community property. Both parties own all property equally, regardless of whose money actually purchased the property. Stay-at-home spouses benefit greatly by this particular aspect of community property, since it provides some parity for those who may have forgone careers to raise children.

There are two exceptions to the property division guidelines:

1. Property and income owned prior to the marriage is not included in the community property bucket, unless that property intermingled with the spouse's property. For example, the contents of a savings account held privately by one party prior to marriage would automatically become community property if funds from the other party were ever deposited in it.

2. No matter when property was inherited, it is always considered exempt from community property provisions when it is a gift given to only one party.

Marital Debt

In contrast to how community property treats property held prior to marriage, marital debt acquired before marriage becomes the debt of both parties upon tying the knot. It pays to have a frank discussion with your fiance about their debt prior to marriage, since you are actually taking on that financial obligation.

Contact a family law attorney from a company like Stephen J Weisbrod Esq Law for assistance in crafting a prenuptial agreement that can protect your debt liability and assets before marriage. For those divorcing in a community law state, rely on the guidance of a divorce attorney well-versed in protecting your rights to a secure financial future.