How Community Property States Handle Asset and Debt Division

The term "community property states" refers to state laws about how divorcing spouses divide property. Community property laws prevent long court battles about shared assets by dividing both property and debts directly down the middle.

Which States Are Community Property States?

The nine community property states in the U.S. are Wisconsin, Arizona, Washington, California, Texas, Idaho, New Mexico, Louisiana and Nevada. If you divorce while living in one of these states, you must split marital debts and assets 50/50 with your spouse. In addition, you can choose to follow the community property division standard voluntarily if you live in Tennessee, Alaska or South Dakota.

If you have a prenuptial agreement, most states allow it to override the community property standard. In this case, the court will review the agreement and ensure it meets legal standards for property division.

You may be unsure about where to file your divorce paperwork if you recently moved or if you and your estranged spouse live in different states. You should submit your petition in the state where you have your permanent legal residence, typically the address where you receive mail, vote and pay income tax. 

Other states follow the equitable distribution standard for property division. Divorcing spouses must divide property fairly, but not necessarily equally, based on factors such as health, age, income and standard of living during the marriage.

How Does Debt and Asset Division Work in Community Property States?

This standard of property division applies to community assets and debts, which includes any money earned or debts accrued by either you or your spouse during the marriage. Examples of community property include collective income, real estate holdings, other valuable personal property and investment funds such as retirement accounts.

Community property does not include anything you owned before the marriage or purchased after separation. It also excludes any inheritance or gift received by only you or your spouse. Debts acquired before marriage or after separation also remain with the individual and do not fall into the community property category.

To determine your share of community property, you and your spouse must inventory and appraise your shared assets, then subtract the total of your collective debt. You would then divide the remainder by two and figure out which specific assets would go to each person. Many couples opt to sell community property and split the cash proceeds rather than dividing items like furniture and real estate.