Community Property FAQs

We receive many questions concerning community property laws, below are some of the most commonly asked questions.

What is "community property"?
What is "common law"?
What states are considered "Community Propterty States"?
What does "community property state" mean?
How does the IRS define community property?
What states are considered "Common Law Property States"?
What is the difference between "Community Property" and "Equitable Distribution"?
What about debts?
What is a "property settlement agreement"?
What is "community property"?

The term "community property" is a marital property regime under which most property acquired by a spouse during a marriage (except for gifts or inheritances), is owned jointly by both spouses and is divided upon divorce, annulment or the death of a spouse. Community property is premised on the theory that marriage creates an economic community between the spouses (who may be same- or opposite-sex); and that the marital property attaches to that interpersonal community, rather than to the spouses themselves.[1] The community property system has been adopted by nine states: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin. The U.S. Territories of Guam and Puerto Rico are also community property jurisdictions.[5]


hat is "common law"?

The term "common law" is a marital property regime which means that each spouse is a separate individual with separate legal and property rights. Thus, as a general rule, each spouse owns and is taxed upon the income that he or she earns. Common law is the dominant property system in the United States.[5]


What states are considered "Community Propterty States"?

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.[2] Alaska has also adopted a community property system, but it is optional. Spouses may create community property by entering into a community property agreement or by creating a community property trust.[1]


What does "community property state" mean?

Generally, in community property states, money earned by either spouse during marriage and all property bought with those earnings are considered community property that is owned equally by husband and wife. Likewise, debts incurred during marriage are generally debts of the couple.

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.[2]


How does the IRS define community property?

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.[2]


What states are considered "Common Law Property States"?

Most states are common law property states. So, what does it mean to live in a common law property state and who owns what after a divorce? The term "common law" is simply a term used to determine the ownership of marital property (property acquired during marriage). The common law system provides that property acquired by one member of a married couple is owned completely and solely by that person. Of course, if the title or deed to a piece of property is put in the names of both spouses, however, then that property would belong to both spouses. If both spouses' names are on the title, each owns a one-half interest.[3]


What is the difference between "Community Property" and "Equitable Distribution"?

There are two main systems for dividing marital property: equitable distribution and community property. While the majority of states use equitable distribution, the community property states are larger and thus about a third of the U.S. population lives under these states, including California and Texas. Community property states split marital property evenly, while equitable distribution states will give the higher earning spouse a larger share than the lower-earning spouse, such as a stay-at-home parent.[4]


What about debts?

Property settlement agreements can be amicably entered into between former spouses to avoid drawn-out court proceedings in a divorce. The judge will review it for equity, but as long as it’s fair enough, it’s typically granted. If both you and your ex can agree to a particular division of property, then it may be in your interest to settle your marital property issues outside of court.[4]


What is a "property settlement agreement"?

Property settlement agreements can be amicably entered into between former spouses to avoid drawn-out court proceedings in a divorce. The judge will review it for equity, but as long as it’s fair enough, it’s typically granted. If both you and your ex can agree to a particular division of property, then it may be in your interest to settle your marital property issues outside of court.[4]


Research cited in this article was derived from the following sources:

[1] Wikipedia.org. (2019). Community property. Retrieved from https://en.wikipedia.org/wiki/Community_property
[2] Lisa C. Johnson, Esq. (2019). Do You Live in a Community Property State?. Retrieved from https://www.legalzoom.com/articles/do-you-live-in-a-community-property-state
[3] Findlaw.com. (2019). Marital Property: Who Owns What?. Retrieved from https://family.findlaw.com/marriage/what-s-mine-is-mine-what-s-yours-is-mine-who-owns-what-in.html
[4] Findlaw.com. (2019). Divorce and Property. Retrieved from https://family.findlaw.com/divorce/divorce-property.html
[5] Internal Revenue Service - irs.gov. (2019). Basic Principles of Community Property Law. Retrieved from https://www.irs.gov/irm/part25/irm_25-018-001