Community Property vs. Separate Property 24

What’s Ours? What’s Mine?

One of the most difficult aspects of divorce is deciding who gets what. In the absence of a prenuptial agreement, state laws govern how property and assets are split between the two parties. Depending upon your state’s laws, you may get more or less than you think you deserve.

Property Basics

Property can be divided into two categories: community and separate (sometimes also called “personal property”).

Community property is generally anything that was acquired after marriage. This can include the house you bought, cars, furniture, artwork, collectibles and even income that was earned during the marriage.

Separate property on the other hand, is generally anything that was acquired prior to the marriage. Separate property can also include items or money received as an inheritance (even after the marriage) as well as any property acquired after a legal separation.

Commingling

The problem with allowing the state to distinguish between separate and community property is that the two often become mixed during the marriage, a process known as “commingling.”

Let’s say for example, that you entered into a marriage with a hefty savings account. You then opened a joint checking account with your spouse and transferred some of your separate savings into the new account. Both of you used this account exclusively, making withdrawls and deposits on a regular basis. In the event of a divorce, it would be difficult to distinguish your original savings from the existing balance in the account because you have blended your money with that of your spouse, treating it as community property.

To avoid this situation, you’ll want to take extra care to document any separate property that is used in a community property manner. If the funds from the savings account were used to purchase a particular item for example, the receipts could be used to trace the money back to the separate account. [more about commingling…]

Debts

Like assets and income, debts can also be categorized as separate or community property. A credit card account that was opened jointly during the marriage for example is considered to be community property and both parties are responsible for its repayment.

On the other hand, a debt that was assumed prior to the marriage or after a legal separation would be considered separate property and the account holder bears the responsibility for repayment.

Future Income

In addition to money earned during the marriage, your retirement benefits are also considered to be community property. That means if you’re sitting on an impressive 401(k), your spouse may have the right to a portion of these funds.

This right can often be waived in a prenuptial agreement or provided for in some other fashion. In the event that there’s no prenup, the judge will address the issue in one of two ways: a division of the account or a waiver from the spouse.

If the account is to be divided, it can be done through a buyout or the account can be split into two separate accounts. A buyout is a situation in which the account’s owner pays his/her spouse a certain amount, either through a property trade or cash payment. If the account is to be split, a certain sum will be transferred into a new account in the name of the recipient spouse.

Social security payments and worker’s compensation payments are not considered community property.

“Community Property States”

States that have community property laws treat income during marriage differently than other states. Special rules apply to spousal property and income in the community property states:

You should always consult with an attorney to learn more about how property laws in your state will affect you.

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