Property Division in Divorce: Community versus Separate Property
By Allysyn Overton, Esq.
Dividing property and debts during divorce proceedings can often be a confusing concept for parties. I’m going to try to demystify the concepts for you, here.
Community Property vs. Separate Property
Separate Property
Separate Property refers to all of the assets and debts a person entered the marriage already possessing. During the marriage, things like inheritance, lottery winnings, tort court awards, and any gains or liabilities born of other separate property are all considered separate property, and should be awarded to the owner during divorce proceedings. For example, if Wife owns an apartment she bought before the wedding, and during the marriage, she is gaining rental income from that property, her rental income would likely be considered her own separate property. This should not be confused with employment gained before the marriage. If you have the same job after the day of your wedding as you did before the wedding, your earned income after the wedding would still be considered community property.
Community Property
Community Property refers to the assets and debts that the parties gained during the marriage, except for the situations described in the preceding paragraph, like inheritance, court awards, lottery winnings, and income gained from property acquired before the marriage, such as rental income from a house purchased before the wedding.
I like to think about it this way. On the morning of your wedding, you each had a piggy bank over your heads. Then, when you are pronounced married at your wedding, POOF, another piggy bank pops up between your heads. For the next several years, everything that comes in goes into the community piggy bank, no matter where its kept, with the exception of things like inheritance, lottery winnings, court awards, etc. Those exceptions go into your separate piggy bank. If you get divorced, the community piggy bank is smashed to the ground, and the court divides its contents equally between you. You get to walk away with your separate piggy bank intact.
Retirement Benefits
How retirement benefits are handled can be confusing for people, but the same concept applies. Let’s use a 401k as an example. Husband has a 401k with the job he started before he met his partner. After their wedding, his 401k keeps gaining interest, and he and his employer keep contributing to it. So, some of his 401k will be in his separate piggy bank and some goes in the community piggy bank to be divided between the parties. Any and all contributions made during the marriage, and interest accrued from those contributions, no matter when that interest was acquired, all remains in his separate property piggy bank. All contributions made after the wedding and interest accrued from those contributions all go in the community piggy bank and will be divided accordingly as of the date of separation.
Date of Separation
The date of separation is an important date to consider, because on this date all community property contributions end. That community piggy bank’s slot is plugged on this date, and most everything acquired upon this date goes to separate property piggy banks. Of course, any interest or other income born from community property will still be considered community property, but every other acquisition as of the date of separation is separate property. So how does the court determine the date of separation. The day that one or both of the parties decided to terminate the relationship and didn’t do anything to go back on that decision is usually considered to be the date of separation. I had a case in which the husband and wife had been romantically broken up for months, but were still living together. This was because rent was so expensive in the city at the time, that neither of them were ready to find separate homes. However, a few months prior to my coming into the case, the husband told his wife it was over, and he left the home and stayed in a hotel for several nights. When he returned to the home, he took up a bedroom in the parties’ office, rather than in the master bedroom, which became the wife’s room. This act of him leaving the home, and not returning to the marital bed, was enough to decide that the day he left and went to a hotel was the date of separation. Had he returned to the master bedroom upon his return, the wife would have had a good argument for a later date being the date of separation.
To set up a free consultation with the author, visit https://calendly.com/legallyoverton/20min
Or email us at legallyoverton@gmail.com