What Is Community Property?

The term community property can be confusing. Most of us have heard the term in connection with the way property is divided in a divorce case. But the difference between community property and separate property is important for other reasons. For instance, the creditor of one spouse may be able to reach community property (for example, through repossession) even when they would not be able to reach separate property of the other spouse. 

Here’s how community property states are different, why it matters to you, and how it may impact debt collection and bankruptcy.

Which States Are Community Property States?

The community property states are: 

• Arizona

• California

• Idaho

• Louisiana

• Nevada

• New Mexico

• Texas

• Washington

• Wisconsin

These nine states consider most property acquired during marriage to be joint property of the spouses, no matter how the property is titled. 

For example, if one spouse purchased a boat while married, it would generally be considered community property from the moment of purchase. This is true even if the purchasing spouse used their ow money and titled it in their name only.

By contrast, if the same thing happened in a state without community property laws, the boat would be the separate property of the spouse who purchased and registered it.

Specific rules are different from one community property state to another. For instance, California is a community property state, but spouses can agree to classify their property differently. Alaska is not a community property state, but married couples can agree to opt in to a community property arrangement. 

Community Property vs. Marital Property: What's the Difference?

Understanding the difference between community property and marital (or common law) property can make a big difference, especially during a divorce or when dealing with debt.

Here are the two key ways they differ:

• Dividing property during divorce:

  • In community property states, most property either spouse gets during the marriage is considered jointly owned. It’s usually divided 50/50 in a divorce.

  • In common law (equitable distribution) states, property isn’t automatically split in half. A judge decides what’s fair, which may not be equal.

• Ownership and debt during the marriage:

  • In common law states, a spouse can own something separately if they buy it and title it in their own name. For example: If one spouse buys a boat and puts only their name on the title, they’re usually the only owner. That boat doesn’t automatically go to the surviving spouse after death. It depends on the will. Creditors typically can’t take that boat to pay the other spouse’s debts.

  • In community property states, most property and debts from the marriage are shared—even if only one spouse's name is on the item or the loan. That same boat could be treated as shared property. Creditors may be able to go after it to pay either spouse’s debts.

What Is Separate Property in a Community Property State?

Again, community property laws vary slightly from state to state. Generally, in a community property state, property will be treated as separate if:

• One spouse owned the property before the marriage

• The property was gifted to or inherited by one spouse alone

• The property was purchased separately and not mingled with community property

• The spouses have agreed that the property will be separate, following the laws of their state

How Does Bankruptcy Work in a Community Property State?

If you’re married and considering filing bankruptcy, you may be wondering if you should file individually or with your spouse. The answer is different for everyone. When making the decision, it’s important to know whether you are in a community property state. 

In a common law state, only property the filing spouse actually owns is listed in the bankruptcy schedules. In a Chapter 7 case, the trustee can only take non-exempt property belonging to the filing spouse to pay creditors. So, if one spouse has accumulated a lot of debt during the marriage and the other has not, it may make sense to file individually.

In a community property state, all community property must be listed in the bankruptcy. Most debt that either spouse accumulated during the marriage will be considered community debt. And non-exempt property of the community can be used to pay community debt. That means the other spouse’s share of community property may be at risk. 

On the other hand, community property isn’t available to pay separate debts of one spouse. So, if the filing spouse accumulated most of the debt included in the bankruptcy before marriage, the case will play out very differently. 

Let’s Summarize…

If you’re considering bankruptcy or just facing problems with debt, it’s important to know whether you live in a community property state. It’s also important to figure out what property belongs to you or your spouse individually and what is community property. If you’re unsure of how your property will be treated in debt collection or bankruptcy, you may want to consult an attorney.