What Is Community Property and How Does it Affect Me?

Marriage joins people together in love—and it usually brings their finances together, too. You and your spouse might share bank accounts, buy a home, and plan your big and small money goals as a team. 

When you're in the midst of wedded bliss, you may not give much thought to how you'd divide your assets (and debts) if the marriage were to go south. You also might not be ready to have a conversation just yet about how to handle your finances when one of you passes away.

If you live in a community property state, it's important to understand what that means for you financially if your marriage ends. Community property is a complex topic, but we'll introduce you to the basics. 

What Is Community Property?

Community property is property acquired in a marriage. In states that follow community property rules, the law assumes a 50/50 split for assets and debts. Even so, that doesn't mean spouses are equally entitled to everything. 

Community property applies to property acquired during the marriage, not before. Assets and debts that were yours before you got married are yours alone. They're called separate property.

States That Follow Community Property Laws

Only nine states follow community property rules:

• Arizona

• California

• Idaho

• Louisiana

• Nevada

• New Mexico

• Texas

• Washington

• Wisconsin

In these states, married couples are subject to community property rules. California, Nevada, and Washington also apply community property rules to couples registered as domestic partners. 

How Does Community Property Affect Shared Debts?

When you talk about community property, it's natural to focus on assets. But debt also comes into play. Community property rules generally mean that any debts acquired during the marriage are equally shared by both spouses. There are exceptions in some states.

So, if you get a car loan or a credit card after you tie the knot, that debt belongs to both of you equally. It doesn't matter if a loan or credit card is in your name only. The law says it's your spouse's just as much as it is yours. 

Related: Debt and Divorce: From Division to Debt Relief

How Does Community Property Affect You During Marriage?

Community property rules mean that any property you acquire after you're married legally belongs to both of you. The same goes for nearly all debts. Again, what matters most is when an asset or debt is acquired, not whose name is on it. 

Let's say you get married and six months later, buy a home. Your spouse has a higher credit score and income, so the two of you decide to get the mortgage and buy the home in your spouse’s name only. Community property rules say that half the house is yours—and half the mortgage debt, too. 

Is there a way around community property rules? There could be if you draft a prenuptial agreement that specifies a different division of assets or debts. Of course, prenups can be a touchy subject and many couples don't pursue them. If a trip to the altar might be in your future, consider chatting with a divorce attorney to discuss whether a prenup is the right move. 

How Does Community Property Affect Divorce?

Divorce courts usually follow community property rules. That means assets and debts acquired during the marriage are usually treated as equally owned, and divided down the middle. 

States can interpret the law to make exceptions.

• Arizona and Texas allow what's called an "equitable" distribution of property, which means the division has to be fair, but not necessarily 50/50. 

• Nevada allows for an unequal division if the court has a compelling reason to do so.

Any assets you brought into the marriage would still be your separate property. Again, there are exceptions. For example, if you had money in your own bank account when you got married, that money is yours. But if you use the money as the down payment on a home for the two of you, your separate property could now be community property.

How Does Community Property Affect Inheritance?

Community property rules usually exclude inheritances or financial gifts you receive from people other than your spouse. For example, if you live in California and your parents leave you their money when they pass away, that's separate property. It belongs to you, not your spouse.

Now, what if your spouse passes away, so you’re inheriting from them? 

Community property generally goes to the surviving spouse, and separate property usually follows state-specific rules. In Nevada, for instance, spouses inherit all of their deceased spouse's community property. The amount of separate property they can inherit depends on whether their spouse had a will and any heirs, including children, parents, and other relatives. 

A will is a written plan for how you'd like your assets to be divided when you pass away. If your spouse didn't have a will, their separate property would be divided between you and anyone else who's entitled to inherit, according to the rules set down in state law. 

Assets aren't the only thing you can inherit in a community property state. You could also inherit credit card debt or other debts from your spouse.

How to Navigate Community Property Laws

Community property laws can be a challenge to decode, and it helps to talk to a knowledgeable expert. 

• An estate planning attorney can walk you through the benefits of having wills in case one of you passes away. 

• A divorce attorney can offer advice on prenups and when one might make sense.  

• If you're at the divorce stage, an attorney can explain how a court is likely to divide your assets and debts.

• Once the divorce is finalized, you might talk to a financial advisor about how to manage the assets and debt you took with you.

When a divorce leaves you deep in debt, it's important to look at all your options. For example, debt relief could be a good fit if you have a lot of unsecured debt (like credit cards) that you can’t afford to repay. When you settle debt, your creditors agree to accept less than what you owe. A debt expert can walk you through how the process works to help you decide if it's right for your situation.