4. Community Property and Equitable Distribution in a Prenuptial Agreement
To understand what a prenuptial agreement can do, it is important to understand community and separate property. Community property is observed in the following states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. All other states follow equitable distribution laws.
In a community property state, the husband and wife equally own all income and assets earned or acquired during the marriage. This means the husband and wife equally own all money earned by either one of them during the marriage, even if only one spouse works. In addition, all property gained during the marriage with "community" money is deemed to be owned equally by both the wife and husband, regardless of who purchased it.
In a community property state, all debts contracted from the beginning of the marriage until the date of separation are community debts. This means both spouses are equally liable for these debts. In most cases, this includes unpaid balances on credit cards, home mortgages and car loan balances.
In equitable distribution states, property acquired during the marriage belongs to the spouse who earned it. In a divorce, the property will be divided between the spouses in a fair and equitable manner. There is no set rule for determining who receives what or how much, but a variety of factors are considered. For example, the court may look to the relative earnings contribution of the spouses, the value of one spouse staying at home or raising the children, and the earning potential of each. Often, each spouse will receive one-third to two-thirds of the marital property.
Regardless of your state's property division laws, a prenuptial agreement lets you decide how marital property will be divided in the event of a divorce. For example, a prenuptial agreement can state that income earned during the marriage will belong to the spouse who earned it. In this sense, a prenuptial agreement can "override" community property or equitable distribution laws.