Do You Live in a Community Property State?

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With the constant stream of celebrity news, it’s hard not to be aware of some of the property issues that arise when the super rich divorce. But some property issues are relevant in all divorces, regardless of the net worth of the individuals involved.

A house purchased together may be one of the largest assets for many couples. When one or both spouses worked to build a business, even more money could be involved. They each may wonder who will own the business if they divorce. An article on Inc.’s website discusses some of these issues.

The rules will vary depending upon the state in which you live. States are either community property states or not. Most states are not and are considered equitable distribution states where property is distributed fairly, but not necessarily equally.

Community Property

There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska is an opt-in community property state that gives both parties the option to make their property community property.

An IRS website stresses that it’s important to determine the proper domicile. Domicile is a person’s legal permanent residence and may not be where they currently live. For those in the military, people who have homes in several states, or for those who have moved frequently, figuring out which state is their proper domicile is key.

IRS Publication 555 gives further guidance and states that generally community property is property:

  • That you, your spouse, or both acquire during your marriage while you and your spouse are domiciled in a community property state.
  • That you and your spouse agreed to convert from separate to community property.
  • That cannot be identified as separate property.

 

Guidance is also given regarding what is considered separate property:

  • Property that you or your spouse owned separately before your marriage.
  • Money earned while domiciled in a noncommunity property state.
  • Property that you or your spouse received separately as a gift or inheritance during your marriage.
  • Property that you or your spouse bought with separate funds, or acquired in exchange for separate property, during your marriage.
  • Property that you and your spouse converted from community property to separate property through an agreement valid under state law.
  • The part of property bought with separate funds, if part was bought with community funds and part with separate funds.

 

A valid premarital agreement is an agreement that may change the result of property division.

50-50 Split

A community property state presumes both spouses equally own all marital property and it will be split 50-50 in a divorce.

The Uniform Marital Property Act was enacted in 1983 by the Uniform Law Commissioners. It was created to encourage sharing by spouses of property acquired during marriage by creating a class of property in which husband and wife have an equal interest. Wisconsin was the first state to adopt the Act. Alaska allows spouses to choose community property by written agreement.

Dodging A Bullet

A celebrity divorce that sports fans, especially Los Angeles Dodger fans, are watching closely is that of Frank and Jamie McCourt. Frank McCourt became the fourth owner of the Los Angeles Dodgers in 2004. However the ownership of the team is at center stage of the divorce. Frank claims that a post-nuptial agreement gave him sole ownership of the team. Jamie disagrees. She disputes the validity of the agreement and argues that the team should be community property. After the trial ends and the judge rules, the ownership of a professional baseball team may be decided based on community property law.

 

Sources:

How to Protect Your Business in a Divorce, by Jeff Landers, May 25, 2010.
IRS Courseware - Military Income: Community Property States
IRS Publication 555 (5/2007), Community Property
Uniform Marital Property Act
A Few Facts About The Uniform Marital Property Act
Chapter 34.77 - Alaska Community Property Act
McCourt Dodgers trial continues, by Molly Knight, September 27, 2010.