How does community property work?
What is Community Property?
Community property is also called shared property. Community property means that any property acquired during a marriage is regarded as belonging to both spouses, regardless of how the property was obtained or whose name is on the deed or title of that property.
Community property states enforce the idea that married couples are financially recognized as one entity rather than separate people. The goal is to encourage equitable distribution of assets where both partners receive their fair share of assets obtained during the marriage.
If a couple lives in a community property state and one of them buys a car for themselves with money that came from their own paycheck, they’re the only person on the title, and they don’t usually allow their spouse to drive that car, the law would say that the car still technically belongs to both of them.
What Are Community Property States?
Community property ownership has almost been completely phased out in terms of how couples own property. This method of property division made more sense in a landscape where one partner worked, and the other maintained the home and cared for the children.
In modern times, it’s common for both partners to have an independent income and independent pieces of property. A few states have yet to transition from common law property to the community property system:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
California, Washington, and Nevada extend community property law to domestic partnerships. If you end a domestic partnership in these states, you’re required to divide property according to community property guidelines.
Some states allow couples to choose to use community property when dividing assets in a divorce.
Alaska, Tennessee, Kentucky, South Dakota, and Florida let couples choose how they want to handle property division. Voluntarily using community property law is most advantageous when neither person has a significant amount of individual property.
Are There Exceptions To Community Property Rules?
Community property states do allow for some exceptions. Property you owned before you were married doesn’t become community property.
Assets like direct inheritances left specifically to one spouse also don’t become community property. If you had a relative that passed away and left you a substantial amount of money or assets of significant value, it isn’t assumed to belong to both people.
If you have a prenuptial agreement or a postnuptial agreement that specifically states how property should be divided in the event of a divorce, the agreement outweighs community property law.
If one spouse challenges the agreement, they can attempt to fight it in court. It’s difficult to fight a prenuptial agreement but slightly easier to fight a postnuptial agreement. If they win their challenge, you’ll revert to community property law when dividing your property. If they don’t win, the prenuptial or postnuptial agreement will be enforced.