What is Community Property?

Divorce is hard enough, but dividing community property can be even more so. First, the parties must identify what constitutes community property, and that can be a contentious process, especially if there's been any commingling of funds between separate property and community property. Then, valuation of the property is necessary to make sure there's an even split of property, unless circumstances demand another proportion to reimburse one spouse for the bad behavior or waste of community funds by the other spouse.

Generally speaking, community property is property obtained by either spouse, or both spouses together, during the course of the marriage. This property is to be distinguished from separate property, and only owned by one spouse. Community property may include real property, stocks, and retirement accounts. Debt accumulated by one or both spouses during the marriage can also be considered as community property and belongs to both parties.  

Conversely, separate property is all property owned by a person before marriage, property acquired during marriage by gift, bequest, devise, or descent, and any rents or profits from a separate property asset.

There are some states that are considered “community property” states, such as California. In these states, all community property assets are considered to be owned jointly by the spouses and must be split jointly when the parties divorce. Community property belongs to the marriage rather than any one spouse. For example, if a home is bought in only the name of one spouse during the marriage, that home is considered to be community property and belongs to the marriage (and should be split between the parties).

Community property states do not recognize the name a property is registered in as the only owner. For example, one spouse may earn a pension through their employer, and this pension is in their name alone. However, in a community property state, the pension is recognized as belonging to both spouses and will be disbursed accordingly. This can seem particularly unfair when assets are divided.

There are a few exceptions to what is considered community property in the states that recognize it. For example, property acquired before marriage or an inheritance, even one received during the course of the marriage, may not be considered community property. 

One common issue in dividing assets in a community property state is the commingling of separate property with community property. The court will attempt to trace separate property that has been commingled with the community property and return it to its rightful owner. For example, if one spouse uses part of an inheritance to purchase a vacation home, they should receive full credit back for that amount as an inheritance is considered separate property. 

Businesses are also often a source of contention in divorces in community property states. Who bought the business and when, as well as who contributed funds and where the funds came from, are all matters to be considered when deciding if a business is community property.

If you are going through a divorce, it is imperative that you know and understand the laws of your state, and how to properly distinguish between community property and separate property.

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