The technical answer is Yes. But, the real is answer “it depends”.
What does the term community property mean?
Certain states have what is known as community property laws. If you live in a state that is defined as a “community property state” then all assets that accumulate during a marriage are deemed to be jointly owned by the spouses. Only nine states are considered community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. All other states are deemed to follow equitable distribution as noted below.
Why is the definition of community property important in context to a divorce?
If you live in a community property state and you decide to get a divorce the law states the assets are equally owned and can be allocated equally. Yet, this does not mean the allocation has to be equal. Nor does it mean the state law has to rule over how you and your spouse decide how the assets will be divided.
So, if I live in a community property state does that mean everything gets divided 50/50?
A divorce is ultimately a negotiation. Although the state law may allow for an equal allocation, the couple can negotiate how the assets are ultimately divided. You may need an expert negotiator who understands technical financial matters to arrive at your desired outcome.
The rest of the states follow what is known as equitable distribution
Equitable distribution means the assets accumulated during a marriage will be distributed in a fair and equitable manner between the spouses during a divorce. Yet there are no set rules that define what fair and equitable means per se. The couple can negotiate and decide on their own terms.
Are there exceptions to the community property rules?
Yes, if you live in a community property state but acquire an asset through a personal gift, inheritance or the asset was acquired before the marriage, those assets may be deemed “separate property” and not part of the communal funds. Yet you have to be careful about this definition. Read “How are inheritances handled in a divorce” for further insight.
About the Author
Larry Smith is a Founding Partner of Divorce Outcomes, a specialized professional services firm that manages all of the financial aspects in a divorce process. Since 2003 he has worked as a trusted financial advisor, financial advocate, divorce architect and technical financial expert; he is not an attorney. He is an alumni of KPMG and Andersen with expertise in technical accounting, forensics, sophisticated taxation, management consulting, risk management, advanced process engineering, business combinations, divorce management, multi-party negotiations, advanced quality analytics and cognitive performance technologies. Since 1986 Larry has been advising individuals and organizations about innovative financial solutions to resolve complex financial challenges that arise in life and in business.
For both personal and business divorces, Larry is considered an expert in divorce strategies, divorce process management, financial divorce architecture, financial risk management, taxation for divorces, financial divorce forensics, advanced divorce analytics, financial divorce negotiations and mediation, business valuations and sophisticated equity structures. He helps clients shape complex financial decisions, manage communication risks and ever-changing negotiating positions to strategically preserve or grow wealth from these types of transactions.
If You Have a Question
If you have a question, feel free to contact me at larry.sm[email protected] or 617-680-5222. The call is free. I will spend 30–60 minutes with you. I will provide you an honest assessment as to where I think you are positioned in your divorce process or answer any questions you have. I may provide you some guidance, insight or advice that you can take with you as you wish. There is no obligation to move forward. The phone call is designed to ease your fears, provide you some options to pursue and a potential road to run on that can lead you down a path to achieve a successful outcome.
About Divorce Outcomes
Divorce Outcomes is a specialty services firm that helps people both domestically and internationally manage all of the financial decisions that arise in their divorce process. We are not attorneys. We are financial experts who partner with our clients as their personal financial advocates. We help our clients manage their divorce process, uncover hidden financial risks, architect divorce solutions, manage ever-changing negotiating positions, communicate complex financial matters and close the divorce process as soon as possible with a goal to arrive at the best outcomes possible. Throughout the process we evaluate the current state of our clients’ financial lives with an objective to best reposition their future. We do not sell any products. We simply raise issues that are in our clients best interest. Our clients share with us we:
- unfold, analyze and repackage their financial life so they are well positioned after their divorce
- preserve the value of their business or marital estate
- continuously strive to provide a return on our services
- build balanced financial solutions grounded in evidence
- find ways to make our client, and at times both parties, money through the process
- design their divorce to work for them and their family’s life
- provide mental clarity to make decisions
- reduce the total process time from start to close
- minimize the stress and unpleasant memories that can last a lifetime
As we reach an agreed upon settlement structure, we help our clients identify a fitting attorney who can leverage the financial solution to draft and record the requisite legal documents. Where outcomes are at risk from a traditional process, we function as expert financial negotiators or financial mediators to turn around the situation and achieve our client’s desired outcomes.
This communication is for general informational purposes only which may or may not reflect the most current developments. It is not intended to constitute formal advice or a recommended course of action as every person’s situation is unique and different. The information here is not intended to be, and should not be, relied upon by the recipient to make a decision without professional guidance.