COMMUNITY
PROPERTY
Community property is a marital property
regime that originated in civil lawjurisdictions,
and is now also found in some common law
jurisdictions.
In a community property jurisdiction,
most property acquired during the marriage
(except for gifts or inheritances) is
owned jointly by both spouses and is divided
upon divorce, annulment or death. Joint
ownership is automatically presumed by
law in the absence of specific evidence
that would point to a contrary conclusion
for a particular piece of property. The
community property system is usually justified
by the idea that such joint ownership
recognizes the theoretically equal contributions
of both spouses to the creation and operation
of the family unit.
Division of community property may take
place by item, by splitting all items
or by value. In some jurisdictions, such
as California, a 50/50 division of community
property is mandated by law. In non-community
property states property may be divided
by equitable distribution. Generally speaking,
the property that each partner brings
into the marriage or receives by gift,
bequest or devise during marriage is called
separate property.
In the United States there are nine community
property states: Arizona, California,
Idaho, Louisiana, Nevada, New Mexico,
Texas, Washington and Wisconsin. In addition,
Puerto Rico is a community property jurisdiction.
In Arizona, California, Idaho, Louisiana,
Nevada, New Mexico, Texas, Washington
and Wisconsin, division of property occurs
under community property rules. While
specifics differ from state to state,
in general the community property approach
equally divides the assets of the marriage
between the spouses when they divorce.
Any separate property is retained by the
spouse who owns it.
The first dispute in contested cases
is regarding which marital assets are
community property. Usually, all earnings
acquired during marriage and everything
obtained with those earnings are community
property. All debts incurred during marriage,
unless the creditor was specifically looking
to the separate property of one spouse
for payment, are community property debts.
Generally separate property will be:
*Gifts and inheritances given just to
that spouse;
*Personal injury awards received by that
spouse;
*Proceeds of a pension that vested before
marriage;
*Properties purchased with the separate
funds of a spouse remain that spouse's
separate property; and/or
*A business owned by one spouse before
the marriage remains his or her separate
property during the marriage, although
a portion of it may be considered community
property if the business increased in
value during the marriage or both spouses
worked at it.
Conflict may arise when separate property
is mixed together with community property.
Sometimes, one spouse may be able to identify
which portion of the property is separate.
One example of this is when a house is
owned before marriage and continuing mortgage
payments are made throughout the marriage.
Otherwise if the separate property becomes
mixed with the community property, and
the two cannot be distinguished, the entire
thing becomes community property.
The only way to avoid the equal division
consequences of the community property
laws is through the use of a qualifying
prenuptial agreement.
Property to Be Divided
Certain kinds of property continue to
create controversy at divorce, even under
the clear division rules of the community
property system. Divorcing couples need
to be aware of these assets and the issues
their division may present.
Family Home. The primary residential
property owned by the divorcing couple
is often the marriage's largest asset.
Dealing with its division can be complicated,
particularly when there are children involved.
Courts often favor allowing the custodial
parent to retain the home. Doing so may
require complicated arrangements to ensure
that the spouse who leaves receives adequate
compensation for the home's value as well
as provisions for ongoing mortgage payments,
tax liabilities and upkeep of the home.
When these issues cannot be resolved,
the couple may be forced to sell the home
and split the proceeds.
Pensions. Pensions often follow the family
home as the second largest marital asset.
When there are other income sources sufficient
to compensate the non-pension holder,
courts may leave vested pension rights
in the spouse who earned it. Otherwise,
under a federal law that makes division
of pensions easier, a court in a divorce
case may enter a Qualified Domestic Relations
Order (QDRO) requiring the administrator
of the pension to make payment to both
the worker and their former spouse.
Family-Owned Businesses. When couples
work together in a family owned business,
division of the business presents complex
allocation and valuation problems. First,
the couple or the court must decide who
gets the business. Then, there must be
a determination of its worth, which can
require costly evaluation by outside experts.
As with family homes, if there are not
enough marital assets to adequately compensate
the non-retaining spouse, there may be
the necessity of a forced sale or long-term
buy-out.
Conclusion
Many couples have a difficult time reaching
an agreement about how to divide their
property. Because the specific rules in
each state vary significantly and because
the division of property depends on the
complexity of your assets and liabilities,
it is important to consult with an experienced
family law attorney for assistance if
you anticipate the division of property
is likely to be an issue of controversy
in your divorce.
The Law Office of Mark A. Reed can help
make sure that the division of community
property is equitable. Call for a free
initial consultation.
858-277-0232.
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