The issue of how to divide marital property comes up in almost every divorce, which is why it’s important to know if you live in a community property state or an equitable property state. The way your state handles property division depends on which of these property systems apply.
The exceptions to this happen when there was a prenuptial agreement, or if the parties to the divorce draft an agreement that divides the property according to those specific terms.
Equitable property
Most states operate under equitable property division rules (or separate property rules). Under this system, a court divides marital property according to what it considers to be equitable, or just, to both parties.
This means that a divorce under equitable division doesn’t necessarily allocate assets 50-50 to each spouse. In fact, in some of the rarer circumstances, one spouse can end up with almost everything if this is what the court considers as fair.
In equitable property division divorces, spouses are usually awarded property in proportion to how much they contributed to the marriage. What this means is that usually the spouse who earned more will receive the larger portion of the property and assets because they put more in financially to the marriage.
However, a court doesn’t apply the same rules to every case-it sometimes tries to balance things out by taking other factors into consideration as well. For instance, a stay-at-home mother who raised three children alone may be awarded assets to compensate for her contributions to the family.
Some other examples also include the length of the marriage, the earning potential of each spouse, the standard of living established during the marriage, etc.
As for debts, a court evaluates the financial ability of each spouse when considering marital debt and liability distribution.
Community property
Community property law only applies to these nine states: California, Arizona, Idaho, Nevada, Louisiana, New Mexico, Wisconsin, Washington and Texas.
By contrast, in a community property system a court looks at all assets that were acquired during marriage and then divides them equally between the spouses during divorce. All assets are divided equally regardless of who owns title to them.
For example, both spouses are considered to own all money 50-50 even if one spouse doesn’t work at all. The only time when marital assets aren’t split equally is if a prenuptial agreement was in place.
Additionally, community property laws apply to all joint debts and liabilities because these count as marital property. Therefore, all debts and liabilities are equally divided between both spouses.
Friday, June 17, 2011
Thursday, June 16, 2011
Community Property Issues When Moving to a Different State
What is Community Property?
Any property that is equally owned by both spouses is marital property, or “community property” in states that follow community property laws. Upon legal separation or divorce, community property is to be divided equally between the two parties. This is different from separate property, which is individually owned by one spouse and will remain in their sole possession after a divorce.
Basically, property that is obtained during marriage is classified as community property. Only nine states currently follow community property laws. The rest of the states divide property according to principles of equitable distribution.
Most of the following items of property will be label as community property:
* Property bought using communal funds during a valid marriage
* Non-community property (non-community property) that has been labeled as community property through a valid written agreement between the two spouses
* Non-CP that has been commingled or merged with marital property such that it cannot be distinguished as an individual’s property
* Property wherein both spouses’ names appear on the title (i.e., a car or home)
What happens if we move from a Community Property State to a Non-Community Property State?
Since some states operate according to community property principles while others do not, moving from state to state might have some effects on the couple’s property, depending on the specific laws of the new area of domicile.
However, in general, property acquired as community property in a community property state is not automatically converted into non-community property when moving to a common law state. Community property retains its characterization when the couple moves from the community property state to a Non-community property state.
Also, if, while in the new state of residence, the community property is exchanged for other property, the property obtained is usually considered to be community property. Likewise, if the community property is sold and the funds used for a purchase, that purchase will also be considered community property.
What about when Moving from a Non-Community Property to a Community Property State?
Likewise, if property is obtained by one spouse in a non-Community Property state, that property is considered separate property. If the separate property is brought with the couple when they move to a community property state, then the property remains characterized as separate.
In other words, separate property is not automatically converted into community property just because the couple has moved out of a non-community property state to a community property jurisdiction. Again, if the separate property is exchanged or sold for money, then the property obtained will likely be considered separate property the owning spouse.
On the other hand, some community property states also follow rules regarding “Quasi-Community Property”. Quasi-community property is property that is obtained by a couple living in a common law state that would have been shared property if they were living in a community property state. Quasi-community property is treated like community property when the couple moves into a community property state.
In summary, separate and community property basically retain their characterization when a couple moves to a state with different marital property laws. Check your local laws to see if quasi-community principals apply.
Finally, one of the main issues that arises when a couple moves to a different state is the inheritance taxation based on a death of one of the spouses. Death taxes may differ according to state and according to whether the property is considered community or separate property.
Do I Need a Lawyer for Community Property Issues?
If you are moving from a community property state to a non-community property one, you may wish to consult with a lawyer to determine how this would affect your assets. Every state has different property laws, which could result in different outcomes depending on the state. Also, you may need to hire an attorney if you are facing a divorce or separation and anticipate disagreements over the distribution of properties.
Any property that is equally owned by both spouses is marital property, or “community property” in states that follow community property laws. Upon legal separation or divorce, community property is to be divided equally between the two parties. This is different from separate property, which is individually owned by one spouse and will remain in their sole possession after a divorce.
Basically, property that is obtained during marriage is classified as community property. Only nine states currently follow community property laws. The rest of the states divide property according to principles of equitable distribution.
Most of the following items of property will be label as community property:
* Property bought using communal funds during a valid marriage
* Non-community property (non-community property) that has been labeled as community property through a valid written agreement between the two spouses
* Non-CP that has been commingled or merged with marital property such that it cannot be distinguished as an individual’s property
* Property wherein both spouses’ names appear on the title (i.e., a car or home)
What happens if we move from a Community Property State to a Non-Community Property State?
Since some states operate according to community property principles while others do not, moving from state to state might have some effects on the couple’s property, depending on the specific laws of the new area of domicile.
However, in general, property acquired as community property in a community property state is not automatically converted into non-community property when moving to a common law state. Community property retains its characterization when the couple moves from the community property state to a Non-community property state.
Also, if, while in the new state of residence, the community property is exchanged for other property, the property obtained is usually considered to be community property. Likewise, if the community property is sold and the funds used for a purchase, that purchase will also be considered community property.
What about when Moving from a Non-Community Property to a Community Property State?
Likewise, if property is obtained by one spouse in a non-Community Property state, that property is considered separate property. If the separate property is brought with the couple when they move to a community property state, then the property remains characterized as separate.
In other words, separate property is not automatically converted into community property just because the couple has moved out of a non-community property state to a community property jurisdiction. Again, if the separate property is exchanged or sold for money, then the property obtained will likely be considered separate property the owning spouse.
On the other hand, some community property states also follow rules regarding “Quasi-Community Property”. Quasi-community property is property that is obtained by a couple living in a common law state that would have been shared property if they were living in a community property state. Quasi-community property is treated like community property when the couple moves into a community property state.
In summary, separate and community property basically retain their characterization when a couple moves to a state with different marital property laws. Check your local laws to see if quasi-community principals apply.
Finally, one of the main issues that arises when a couple moves to a different state is the inheritance taxation based on a death of one of the spouses. Death taxes may differ according to state and according to whether the property is considered community or separate property.
Do I Need a Lawyer for Community Property Issues?
If you are moving from a community property state to a non-community property one, you may wish to consult with a lawyer to determine how this would affect your assets. Every state has different property laws, which could result in different outcomes depending on the state. Also, you may need to hire an attorney if you are facing a divorce or separation and anticipate disagreements over the distribution of properties.
Wednesday, June 15, 2011
8 things cardholders should know about community property laws
If your marriage ends in death, annulment or divorce, what happens to debts and community property depends greatly on where you live.
In most states, if the debt or property isn't in your name, it's typically not your responsibility. However, nine states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin -- are so-called "community property" states, meaning that property or debts accumulated by either partner during a marriage belong to both partners and would be divided evenly if the marriage ends. (In Alaska, community property rules apply only if a married couple opts into the arrangement.)
These community property laws vary from state to state, so there are few one-size-fits-all answers. (See our chart for a breakdown of each community property state's laws.) Generally speaking, however, there are some commonalities. Here are some things you need to know if you live in one of these states:
# Your partner's credit card debt could become your debt even if your name's not on the credit card agreement. That differs from non-community property states, where you would have had to be a co-signer on the account to be fair game for collection. Generally, if purchases leading to that credit card debt were made for the benefit of the couple, they are considered community debt. But if purchases were made for a vintage car, for example, that one spouse never benefited from, it may be possible to have that part of the debt removed from dual responsibility.
# States differ on when the marriage is over and separate property begins. Beware that in some states you may not be off the hook for your spouse's spending in the time between separation and divorce. If your divorce drags on for years, your spouse could rack up quite a credit card bill for which you could be jointly responsible. "In community property states, it becomes even more important to divide up your debts when there is a separation, said Gaurav Gupta, director of Novantas, financial consultants in New York City. Cancel your joint checking, savings and credit cards accounts and open new ones in your own name, he says.
# Property acquired before marriage is generally separate, not community property. But you may have to prove that it's separate. Accounting is crucial here. Recording property as your own will help make sure it stays separate, says attorney Linda Pall, a family law specialist in Moscow, Idaho. Say you have a large art collection. When you get married, Pall advises, you may want to get the proof of ownership recorded and stamped in the county in which you live. Attorney Diane Wanger, a family law specialist in Bedford, Texas, also warns people who owned a house before they were married and want to refinance during the marriage to consult an attorney before adding the spouse's name to the deed. It's not necessary in Texas, even though a title company may tell you it is, she says. "You're signing away half your interest in the house, and you may not even know you're doing it," Wanger says. In Washington, separate property may be awarded to the other spouse in rare instances, says Seattle family law attorney Ruth Edlund. A spouse in a long-term marriage, for instance, who made millions and discouraged the other spouse from getting a job might not be able to keep assets earned before marriage separate in the settlement, she says.
# "Equal" is different from "equitable." In community property states that have an equal distribution guideline for community property and debt, "you just add up the values and divide by two," Pall says. "Equitable is to look at the relative positions of the two parties and see what would be fair. It gives the court the opportunity to be something other than just a calculator."
# When dividing up assets and debt, it generally doesn't matter who's to blame. An affair, for instance, typically isn't going to tip the scales. (Texas, where fault for the dissolution of marriage can be taken into account, is one large exception to that rule.) "Bad acts generally do not affect the distribution of the estate," says attorney Ray Oster, chair of the family law division with the State Bar of Nevada. "Unless there is an economic consequence, for instance, committing domestic violence (that results in) your spouse not being able to work." However, a pattern of behavior, such as routinely excluding a spouse from discussions of finances and mismanagement of communal funds, can be an argument for increasing one spouse's share. Judges do have some leeway, says Pall.
# Money spent on gambling or drugs may be exempt from community debt. Such expenditures may be dubbed "marital waste," and in some states, the other spouse would likely not be responsible for those debts. Nevada, famed for its legalized gambling, often sees gambling debts as marital waste and therefore not the responsibility of the other spouse, Oster says. And keep this in mind: One person's marital waste may be another's prudent purchase. Saying your spouse buys too many clothes, for instance, has not argued well in front of Nevada judges, Oster says. "Judges often say, 'That's the reason you're getting divorced.'"
# Things can become community property when you move. This means if a couple moves to a community property state from a non-community property state -- say, from California to Illinois -- property or debts they acquired as a married couple in the non-community property state may be treated the same way they would have been if the couple had lived in the community property state.
# Gifts or inheritance are not included in community property. You may want to keep large gifts separate from joint accounts, says Oster. "Say you have an inheritance of $1 million and you put it into a joint checking account and bills are paid out of that account. A spouse can say that, yes, it's from a separate property source, but it's been commingled back into the estate. If my clients get a big check, I tell them to put it in a different bank because I don't want a teller making the mistake of putting it in a joint account."
Because each state makes its own rules regarding community property, it's important to contact an attorney in your state who is well-versed on community property issues in case of death of a spouse or when you know your marriage is ending.
It's also important to note that just because credit card companies can come after you for your spouse's debt in a community property state, it doesn't mean they will. They usually won't if your name isn't on the credit card agreement, experts say.
"It's not a widely used practice for credit card companies and finance companies to go after the non-debtor spouse in these ways though, legally, they could," says Chris Lombardo, Pacific Director of Counseling at ClearPoint Credit Counseling Solutions in Seattle.
"They're not going to do that until it's in their best interest to go through that lengthy process. Most of the time they'll just write off the debt and call it done."
In most states, if the debt or property isn't in your name, it's typically not your responsibility. However, nine states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin -- are so-called "community property" states, meaning that property or debts accumulated by either partner during a marriage belong to both partners and would be divided evenly if the marriage ends. (In Alaska, community property rules apply only if a married couple opts into the arrangement.)
These community property laws vary from state to state, so there are few one-size-fits-all answers. (See our chart for a breakdown of each community property state's laws.) Generally speaking, however, there are some commonalities. Here are some things you need to know if you live in one of these states:
# Your partner's credit card debt could become your debt even if your name's not on the credit card agreement. That differs from non-community property states, where you would have had to be a co-signer on the account to be fair game for collection. Generally, if purchases leading to that credit card debt were made for the benefit of the couple, they are considered community debt. But if purchases were made for a vintage car, for example, that one spouse never benefited from, it may be possible to have that part of the debt removed from dual responsibility.
# States differ on when the marriage is over and separate property begins. Beware that in some states you may not be off the hook for your spouse's spending in the time between separation and divorce. If your divorce drags on for years, your spouse could rack up quite a credit card bill for which you could be jointly responsible. "In community property states, it becomes even more important to divide up your debts when there is a separation, said Gaurav Gupta, director of Novantas, financial consultants in New York City. Cancel your joint checking, savings and credit cards accounts and open new ones in your own name, he says.
# Property acquired before marriage is generally separate, not community property. But you may have to prove that it's separate. Accounting is crucial here. Recording property as your own will help make sure it stays separate, says attorney Linda Pall, a family law specialist in Moscow, Idaho. Say you have a large art collection. When you get married, Pall advises, you may want to get the proof of ownership recorded and stamped in the county in which you live. Attorney Diane Wanger, a family law specialist in Bedford, Texas, also warns people who owned a house before they were married and want to refinance during the marriage to consult an attorney before adding the spouse's name to the deed. It's not necessary in Texas, even though a title company may tell you it is, she says. "You're signing away half your interest in the house, and you may not even know you're doing it," Wanger says. In Washington, separate property may be awarded to the other spouse in rare instances, says Seattle family law attorney Ruth Edlund. A spouse in a long-term marriage, for instance, who made millions and discouraged the other spouse from getting a job might not be able to keep assets earned before marriage separate in the settlement, she says.
# "Equal" is different from "equitable." In community property states that have an equal distribution guideline for community property and debt, "you just add up the values and divide by two," Pall says. "Equitable is to look at the relative positions of the two parties and see what would be fair. It gives the court the opportunity to be something other than just a calculator."
# When dividing up assets and debt, it generally doesn't matter who's to blame. An affair, for instance, typically isn't going to tip the scales. (Texas, where fault for the dissolution of marriage can be taken into account, is one large exception to that rule.) "Bad acts generally do not affect the distribution of the estate," says attorney Ray Oster, chair of the family law division with the State Bar of Nevada. "Unless there is an economic consequence, for instance, committing domestic violence (that results in) your spouse not being able to work." However, a pattern of behavior, such as routinely excluding a spouse from discussions of finances and mismanagement of communal funds, can be an argument for increasing one spouse's share. Judges do have some leeway, says Pall.
# Money spent on gambling or drugs may be exempt from community debt. Such expenditures may be dubbed "marital waste," and in some states, the other spouse would likely not be responsible for those debts. Nevada, famed for its legalized gambling, often sees gambling debts as marital waste and therefore not the responsibility of the other spouse, Oster says. And keep this in mind: One person's marital waste may be another's prudent purchase. Saying your spouse buys too many clothes, for instance, has not argued well in front of Nevada judges, Oster says. "Judges often say, 'That's the reason you're getting divorced.'"
# Things can become community property when you move. This means if a couple moves to a community property state from a non-community property state -- say, from California to Illinois -- property or debts they acquired as a married couple in the non-community property state may be treated the same way they would have been if the couple had lived in the community property state.
# Gifts or inheritance are not included in community property. You may want to keep large gifts separate from joint accounts, says Oster. "Say you have an inheritance of $1 million and you put it into a joint checking account and bills are paid out of that account. A spouse can say that, yes, it's from a separate property source, but it's been commingled back into the estate. If my clients get a big check, I tell them to put it in a different bank because I don't want a teller making the mistake of putting it in a joint account."
Because each state makes its own rules regarding community property, it's important to contact an attorney in your state who is well-versed on community property issues in case of death of a spouse or when you know your marriage is ending.
It's also important to note that just because credit card companies can come after you for your spouse's debt in a community property state, it doesn't mean they will. They usually won't if your name isn't on the credit card agreement, experts say.
"It's not a widely used practice for credit card companies and finance companies to go after the non-debtor spouse in these ways though, legally, they could," says Chris Lombardo, Pacific Director of Counseling at ClearPoint Credit Counseling Solutions in Seattle.
"They're not going to do that until it's in their best interest to go through that lengthy process. Most of the time they'll just write off the debt and call it done."
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