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."
