Community Property State

What is a community property state?

In community property states, married couples are seen as one legal unit when it comes to owning property and earning money. So, if one spouse buys a car or earns a paycheck during the marriage, the community property system treats it as belonging to both spouses equally rather than separate property.

Community property laws become especially important during divorce, separation, and estate planning, because it affects who gets what. Understanding how the community property system works can also help couples make better decisions before and during marriage about finances, real estate, and prenuptial agreements.

Assets considered community property include anything either spouse earns or buys during the marriage. The following are usually considered community property:

• Income from jobs or self-employment
• Real estate property acquired during the marriage
• Cars, furniture, and appliances bought with joint funds
• Bank accounts or investments added to during the marriage

However, even if it was acquired during the marriage, the following assets are not considered community property and belong only to one spouse:

• Property acquired by either spouse before the marriage
• Property acquired after a legal separation
• Gifts or inheritances received by one spouse during the marriage

Community property law affects debts, too. Debts taken on during the marriage are considered community property and are usually split between both spouses, even if only one person signed for them. However, debts taken on before the marriage stay with the person who created them and are not considered community property.

FAQs

What are the community property states?

Nine states recognize community property: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In addition to the nine community property states, there are also five opt-in states—Alaska, Florida, Kentucky, South Dakota, and Tennessee—that let couples agree in writing to follow community property rules.

What are the benefits of a community property state?

Community property laws can make dividing property more straightforward because the rules are clear. Some people also feel the community property concept is fairer because it recognizes both partners’ contributions to the marriage, even if one didn’t earn income.

Does a prenup override community property laws?

Yes, if a valid prenuptial agreement is in place, it can override community property laws. If you live in one of the nine community property states, you and your spouse can agree in advance on how to handle finances and divide property acquired during the marriage.

What is the opposite of a community property state?

The opposite of the community property state is a common law property state, also called an equitable distribution state. In those states, each spouse owns separate property in their own name, including property acquired during the marriage, unless it’s intentionally shared.