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Property Distribution in a Community Property State

If you live in one of the nine community property states, property is not necessarily distributed equitably in a divorce action. Instead, marital property must be characterized as either community or separate prior to any distribution.
 
Asset Characterization
 
Property must first be characterized as either community or separate. Generally, community property is all jointly owned property acquired during the marriage by the efforts and labor of both spouses. Separate property, on the other hand, is property owned by only one spouse, such as property titled in the name of only one spouse. Separate property may include property that was bought or acquired before the marriage, inheritances and gifts acquired either before or during the marriage, and business and investment interests owned prior to the marriage.
 
Valuation and Distribution
 
Once the court has identified a community asset, it will determine the value of the community's interest. In most cases, an appraisal is used to establish an asset’s value. Parties should retain experienced appraisers in particular areas to determine values and testify accordingly. In many jurisdictions, the court will have a list of approved appraisers, so be sure to check before you hire an appraiser.
 
Additions and capital enhancements to separate property during the marriage are treated as community property. For example, mortgage payments on the marital residence, including both interest and principal, are often made from the community earnings of the parties. Also, the financing and labor used to improve or make additions to the home may be made from community income and/or community labor.
 
Division of the Community and Separate Estates
 
The division of community and separate property is addressed differently, depending on your state. Some factors considered include:
 
(1)   Whether the division must be equal or equitable;
(2)   Whether the court will divide each asset separately or all assets together;
(3)   Whether the court has power over community property only or whether it may also make orders with respect to the separate property of the spouses; and
(4)   Whether the court will consider income tax consequences in the division of property.
 
Division of the Community Estate
 
California, Louisiana, New Mexico, Wisconsin, Nevada and Puerto Rico mandate an equal division of community property, with some exceptions, such as insolvency.  In Louisiana, the statute mandates a division of the community in kind unless the property is indivisible, in which case the property will be liquidated.  However, Arizona, Idaho, Texas, Washington, and Nevada favor equitable distribution of community property.
 
Division of the Separate Estate
 
There is no uniformity in community property states as to the division of separate property. Arizona, California, Louisiana, Idaho and Puerto Rico do not permit the court to disturb separate property ownership. However, New Mexico and Nevada allow the separate property of one spouse to be awarded to the other as support. In Nevada, separate property is not awarded to the other spouse unless there are minor children or some type of support to award. Then, separate property and joint tenancy property may be awarded to the supported spouse. Texas also allows the award of separate personal property to a spouse for support.
 
Conclusion
 
Unlike common law states, community property states are much more likely to provide for an equal distribution of community property and leave separate property intact in the absence of a need for support. However, if you are in a state that awards community property equitably instead of equally, your client will likely be better off coming to an agreement with his or her spouse as to the division of community property. If your client is willing, suggest mediation or set up a meeting with the spouse and his or her attorney to work out as much of the property distribution as possible before resorting to a court order. The parties, not the judge or magistrate, have to live with the outcome of the distribution. It only makes sense, then, for the parties to decide themselves who will get what property.