Community Property vs. Equitable Distribution

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So you’ve reached the point in your relationship where the misery of going through with a divorce is far outweighed by the misery of staying in the marriage. Let’s not gloss over the significance of this realization. Everyone who’s been through it including the lawyers who have represented them will tell you that it’s like pulling off a Band Aid… a Band Aid that’s attached with Super Glue and staples to an extremely sensitive part of your body. It’ll feel better eventually but in the short term, you’re going to have a bad time.

Aside from the obvious emotional pain of accepting that your relationship has failed, part of the reason for this is that many divorces are somewhat acrimonious. It’s been said that you will never hate someone or something more than someone or something that you used to love. If you’ve ever seen the film, the War of the Roses, you might have some idea as to the extent that people might go to be petty when it comes to divorce and division of assets. The movie was about two people each trying to retain ownership of their home during a divorce and the crazy lengths they went to in that quest. People become very childish when emotions are involved and It was a little absurd but there was also a strong ring of truth and relatability to it for anyone who had suffered through a rough divorce. It’s also accurate to point out that there have been many real life cases that were far worse than that movie.

Unless you are lucky enough to have retained a full degree of objectivity and have a soon to be former spouse who has been able to do the same, one of you is liable to use the division of assets as a weapon to punish the person who you blame for your emotional pain. Just to set your expectations properly, there’s a high likelihood that this will happen. This is why people retain lawyers and hire mediators. It’s about protecting yourself and sometimes the person putting your future best interest in jeopardy is actually you!

Luckily for you though, the legal system has handled many divorces over the course of time and though you may feel all alone as you go through the process, it is not your state’s first rodeo when it comes to dissolving your union and providing a way for all parties involved to get a fair shake. It’s important to be willing to be diligent in the process and often critical to be under the guidance of a wise and competent attorney.

The first thing to bear in mind is that divorce law does vary from state to state. If you live in one of the following states or territories, “Community Property” laws apply:
New Mexico
Puerto Rico

So what does this mean? In community property states, both spouses are deemed to equally own all assets and income earned or acquired during the marriage. This means that both the husband and wife are deemed to equally own all money earned by either one of them during the marriage, even if only one spouse is employed. Additionally, all property acquired during the marriage with “community” money is deemed to be owned equally by both the wife and husband, regardless of who purchased it.

Also, in a community property state, the idea of equal ownership applies to debts. This means both spouses hold equal liability for all debts. In most cases, this includes unpaid balances on credit cards, home mortgages and car loans. It should be noted that Alaska is actually an equitable distribution state, but couples may opt-in or agree to use community property rules instead if they wish.

Oregon and the remaining states and territories are what is known as “Equitable Distribution” states. In these states, property acquired during the marriage belongs to the spouse who earned it. Should the couple choose to divorce, property will be divided between the spouses in a fair and equitable manner. There is no set rule in determining who receives what or how much so the court is tasked with considering a variety of factors. For example, the court may look at the relative earning contributions of the spouses, the value of one spouse staying at home or raising the children, and the earning potential of each. A spouse can receive between one-third and two-thirds of the marital property.

Additionally, the court will consider:

The time and duration of the marriage.
The physical and emotional health as well as the age of the spouses.
Income or property brought into the marriage by each spouse.
The standard of living that has been established during the marriage.
Any written agreement (prenuptial agreements) made by the spouses before or during the marriage concerning distribution of property in the event of a divorce.
Each spouse’s economic situation at the time the division of property becomes effective.
The earning potential and income of each spouse.
Contributions of each spouse to education, training or the earning power of the other spouse.
The contribution of each spouse in the acquisition of all marital property
The contribution of a spouse as a homemaker.
The tax liability and consequences for each spouse.
The present value of all marital property.
The need for the custodial parent to remain in the marital home and keep possession of household effects.
All marital debts and liabilities as well as the ability of each spouse to pay those debts.
Any other relevant factors that the court feels should be taken into account.

Keep in mind that if you and your former spouse are able to maintain civility and agree upon how assets and property will be divided, equitable distribution laws won’t apply to you. This is the ideal outcome if it can be achieved but as previously mentioned, it doesn’t typically work out like that. When the parties can’t come to an agreement, that is when the judge will step in and apply the formula laid out above. Fair market value is used to determine the value of all property being divided in the divorce and thanks to “No-Fault divorce laws, bad behavior has no bearing on the division of assets. Property that was acquired separately during the marriage through inheritance or gifts isn’t considered under equitable distribution.

We’ve gone over choosing the right state to file for divorce in previous articles and this is just one more reason to take that under consideration. If your spouse has contributed far less to the relationship but is able to file in a state with community property laws, that might hurt you but if you happen to be the spouse who contributed less, then it could very well play in your favor. As always, we implore you to retain competent counsel and if you think your spouse might be planning to divorce you, take steps to best position yourself for a favorable outcome.

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