Who Owns What in Marital Property?
The state law will determine who owns martial property in case of a divorce or in the event one of the spouse dies. Some states have specific laws that determine what happens to marital property in case of a divorce or death of a spouse. These states are known as community property states. When all is well in the marriage, there may not be any need to determine which of the properties are martial property and which are separate properties of the spouse. But in case of a divorce or death of one spouse, it can play a vital role.
Common Law Property States
Majority of the states are common law property states. In these states, any property that is acquired by any one spouse solely and exclusively belongs to that spouse. If the title to the property has the names of both spouses, then both spouses will own that property equally.
For example, if a car purchased by the wife in her name alone will solely and exclusively belong to her. If she lists her husband’s name along with her name as the owners, then both of them will own the car.
Death or divorce: In case of death, separate property of the deceased spouse will dealt with according to his or her will. In the absence of a will, the state law will determine what happens to the separate property. Marital property is distributed according to the type of shared ownership. For example if the spouses own the property in tenancy by the entirety, then the surviving spouse will get the property irrespective of what the deceased spouse’s will says. But if the ownership is tenancy in common, then the property will be dealt with according to the will of the deceased spouse. When there is no title or deed to a property, the spouse who paid for it or received the property as a gift will generally own it.
In case of a divorce, the court will determine the distribution of marital property. If there is a prenuptial agreement in place, then the marital assets will be divided according to the prenuptial agreement.
Community Property States
California, Arizona, Louisiana, Texas, Wisconsin, Washington, Nevada, Idaho and New Mexico are community property states. In these states, any property acquired after the marriage is community property. Both spouses equally own the marital property. Earnings and all assets purchased with the earnings as well as debts are considered marital property. All property purchased by the spouses after the marriage till they physically separate with intention to end the marriage will be considered as community property. Even the salaries of the spouses during this time will be community property.
Assets acquired prior to the marriage are separate property and will belong exclusively to the spouse who owns it. The owner spouse can transfer ownership or gift the property to the other spouse or make the property community property, for example, by making his spouse a joint account holder. Separate property can be commingled with community property.
One spouse cannot alter, eliminate or transfer any community either wholly or in part without the consent of the other spouse. One spouse may deal with his or her own half in any manner he or she deems fit. But the entire property includes the other spouse’s interest as well. A spouse cannot be deprived of his or her share of the community property by the other spouse.
The following are considered as separate property:
– Property acquired solely by one spouse prior to the marriage
– Property received by one spouse as gift prior to or during the marriage
– Property inherited by one spouse
Examples of community property include:
– Income earned by either spouse during the marriage
– Assets or property acquired by the money earned by either spouse during the marriage
– Separate property that has been commingled with community property and is not impossible to identify.
Example: Jack and Sandra have been married for the past 8 years. Sandra who is a teacher buys a car with her hard earned money. Both of them own the car equally.
Example: Jack purchased an expensive sports car. This car will be his separate property and not community property as it was acquired prior to the marriage. If he gives Sandra one half interest in the sport car, it will community property.
Death or divorce: In case of death of one spouse, the surviving spouse get the share of the deceased spouse in the community property. Separate property will be distributed according to the deceased spouse’s will or the state law if there is no will. Most community property states have a doctrine called the “community property with the right of survivorship”. In such cases, where the couple holds the deed to the property, the title will pass automatically to the surviving spouse without any court proceedings.
In case of divorce or separation, all community property is divided equally. Separate property will belong to the respective spouses. Sometimes it is not possible to divide an asset such as a home equally. In such cases, one spouse will get the home while the other will receive other assets that is equal to 50% of the home’s value. The couple can enter into a prenuptial agreement about the division of marital property.
– Sometimes, the marital property will not be divided equally. Here are some circumstances that can result in uneven distribution of marital property
– Misappropriation of community property by one spouse before or during the divorce
– Educational loans of a spouse will continue to remain the liability of that spouse
– Tort liability incurred by one spouse as long as it is not caused by any activity undertaken for mutual benefit of the spouses
– Personal injury award through a community property is given to the injured spouse in case of a divorce
– The community debts and liabilities exceed the assets that can be used to pay off the debts and liabilities. This is referred to as negative community. The court will want to protect the creditors and so will consider the ability of each spouse to pay the debt.