Community Property Laws v. Equitable Property

Every state in the US has a different set of divorce laws that pertains to distributing assets between spouses. Because of this, divorces happening in California and in Massachusetts will have very different financial settlement outcomes.

“Community Property” laws v. “Equitable Property”

California, Arizona, Idaho, Nevada, Texas, New Mexico, Louisiana, Washington, and Wisconsin are “community property” states, which means they have abide by community property laws. Alaska and Puerto Rico are “opt in” states. In “opt in” states spouses can elect into following community property laws.

What Does “Community Property” Mean?

In community property states all income earned and debts accrued,as well as a portion of the retirements accounts and all property acquired during the marriage are owned by both spouses and is considered “community property,” belonging to both spouses. It is divided upon divorce, annulment, or death.

In these jurisdictions, property owned prior to the marriage as well as property gifted to or inherited by a spouse is considered “separate property,” and stays with the spouse in whose name it is titled to upon divorce or annulment. If the result is harsh alimony rules may soften the community property rules.

While “community property” is generally divided equally upon divorce,in some community property jurisdictions the court has the authority to decree an “equitable” distribution of community property, which might be unequal.

What Does “Equitable Property” Mean?

Divorce in the remaining states falls under the title of “equitable property.” In this system all property is divided on equitable principles. Equitable principles include, but are not limited to: length of the marriage, opportunity for future acquisition, and potential for earnings. Based on the specifics of the situation premarital, gifted, or inherited property can also be included. The Court has the discretion to do what it decides is fair.

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Source: The Huffington Post, Are California Divorce Laws Bad for Marital Health? May 25, 2011