Community Property States vs. Common Law States

How property is divided in a divorce depends largely on the laws of the state where the case is filed. Community property states generally treat most property acquired by either spouse during the marriage as community property, subject to exceptions under state law. Rules governing responsibility for debts and the division of the community estate vary by state. Some require an equal split, while others give courts more discretion. In common law states, judges divide marital property based on factors set by state law, and one spouse may receive more than half. The name listed on an account, deed or title may not determine who keeps the asset after the divorce.

A financial advisor can help you prepare your finances for life-changing events like a divorce.

How Marital Property Works With Divorce

When a marriage ends, dividing assets and debts is a key issue. Marital property refers to assets and debts acquired during the marriage that state law classifies as marital and may make subject to division upon divorce. However, state law may classify some property acquired during the marriage as separate property or exclude it from division. Understanding how these assets are categorized and divided can significantly impact the financial outcome for both parties involved.

Generally, marital property includes income, real estate, retirement accounts and other assets accumulated during the marriage. However, the specifics can vary depending on state laws, which dictate whether a state follows community property or common law principles.

Not all assets are considered marital property. Separate property generally includes assets owned by one spouse prior to the marriage, inheritances and gifts received by one spouse during the marriage. These assets are typically not subject to division in a divorce. However, complications can arise if separate property is commingled with marital assets, such as depositing an inheritance into a joint bank account. In such cases, commingling may make it more difficult to trace and prove that the property remains separate, but it does not automatically make the entire asset marital property in every state. So it’s important to maintain clear records and documentation to protect separate assets during a divorce.

What Are Community Property States?

Community property laws influence how a court handles assets and debts when a marriage ends. While spouses generally share equal ownership of community property, the rules for dividing those assets differ by state. California law, for example, generally calls for an equal division of the community estate. ¹ Texas courts, by comparison, must divide the marital estate in a manner the court considers “just and right,” after taking into account the rights of each spouse and any children of the marriage. ² Property that qualifies as separate, such as premarital assets or items one spouse received individually through a gift or inheritance, generally remains that spouse’s property if it can be established as separate under state law.

Which States Are Community Property States

Currently, nine states have enacted community property statutes as their default marital property system: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Five additional states (Alaska, Florida, Kentucky, South Dakota, and Tennessee) have created legislative frameworks that permit married couples to voluntarily elect community property treatment through the use of trusts or written agreements. However, these five jurisdictions do not automatically classify marital assets as community property; couples must take affirmative steps to opt into such treatment. The specific requirements, tax implications, and procedural rules governing community property designation vary from state to state.

What Are Common Law States?

Common law states are jurisdictions in the United States where property acquired during a marriage is not automatically considered joint property. Instead, legal ownership during the marriage is determined by whose name is on the title or who purchased the asset. This system is different from community property states, where both spouses equally own assets acquired during the marriage. In common law states, the division of property in the event of a divorce can be more complex, as it often involves determining the contribution of each spouse to the acquisition of assets.

The ownership of assets in common law states depends on whose name is on the title. For example, if a car is bought and registered under one spouse’s name, it is generally considered their property. But in a divorce, the court may consider factors like income, homemaking and childcare when deciding how to divide property fairly.

Which States Are Common Law States?

In the United States, the majority of states operate under a common law system. This includes states such as New York, Florida, Illinois and Georgia, among many others. The only states that are strictly community property states by default are the nine mentioned above. While five additional common law states (Alaska, Florida, Kentucky, South Dakota, and Tennessee) permit couples to opt into community property treatment for specific assets through trusts or written agreements, they remain common law jurisdictions by default.

Divorce in Community Property vs. Common Law States

Preparing for divorce will require you to gather information about assets and debts. Start out by making a list of bank accounts, real estate, investments and loans. Having a clear idea of your finances can help you with negotiations and property divisions. Additionally, consulting with a legal professional who specializes in divorce law can provide clarity and guidance for your specific circumstances.

Divorce is not only a legal process but also an emotional and financial journey. It’s important to consider the emotional impact and seek support from friends, family or professional counselors. Financially, creating a budget and reassessing your financial goals can help you adjust to your new circumstances.

A financial advisor can also offer you additional advice during a divorce, regardless of your state’s legal framework. They can explain, for example, how asset division could affect your taxes, retirement savings and investments.

Bottom Line

For couples, knowing which system applies can significantly impact financial planning and decision-making. Whether you’re planning a marriage, considering a move, or facing a divorce, understanding these distinctions can help you make informed choices about your financial future. As laws can vary widely, consulting with a legal expert familiar with your state’s regulations is always advisable. By grasping the fundamental differences between these two systems, individuals can better navigate their personal and financial relationships.

Financial Planning Tips

• A financial advisor can help plan your finances individually and as a couple. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Whether you live in a community property or common law state, the cost of living will vary from place to place. If you want to compare the prices of essentials in different places, SmartAsset’s cost of living calculator can help you get an estimate.

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