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  1. #1

    Default What is the Difference Between Community Property and Equitable Distribution

    Hi there, I have been separated from my spouse for over 6 years now but am only now beginning to move on the divorce process. It is a little tricky because I currently live in a community property state, but am planning a move to an equitable distribution state. I would very much like to minimize any financial settlement with my (effectively) ex spouse. I am the custodial parent of our minor child and have also always been the breadwinner. My ex spouse made very little contribution to the marriage - zero financially and very little in terms of parenting/household. I always carried most of the burdens on every front (provable). The marriage ended following adultery by my ex spouse.

    So it seems logical that an equitable distribution state would be the best jurisdiction for me, right? However, I hear that even in my community property state courts don't necessarily award 50/50, and that there is actually a stipulation of "just and equitable" distribution. This seems really confusing - how, then, is it actually different to an equitable property state?

    Can someone explain the differences in practice?

    Thanks so much!

  2. #2
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    Default Re: Real Difference Between Community Property and Equitable Distribution

    Community property is a system that gives property rights to spouses in certain property acquired in a community property state during the course of a marriage. Those rights vest in each spouse as the community property arises. Thus, if John buys a home in California solely in his name after his marriage to Becky then Becky will nevertheless obtain a community property interest in that home to the extent that community property funds are used to pay for it. If John works in California during the course of the marriage half of his wages from that work belong to Becky. So if John pays the mortgage with the money from his salary, that mortgage is being paid with community property funds thus giving Becky a community property interest in the house even though her name is not on the title of the home. What this means is that if John then wants to sell the property five years later, again while they are still married, Becky will have to sign off on the deed and she will get her community property share of the proceeds. That is necessary because community property laws make Becky an actual owner of the home along with John. She has property rights in the home.

    Contrast that with how it works in a non community property state. If John buys the home in, say, Colorado solely in his name he is the sole owner of the home. If John works in Colorado, his salary is solely his property. He pays the mortgage with that salary. Becky gets no interest in the home in this case, so when he sells the home he does not need her to participate in the sale nor does she have any claim to the proceeds of the house.

    Generally property interests are determined by the law of the state where the property is located, not by the law of the state in which you live. Thus, simply moving now to a noncommunity property state will not convert property that is already held by you and your wife as community property into non community property assets. She already has a property interest in that community property and you can't take that away simply by moving.

    The problem was that one spouse or the other could get the shaft in a non community property state where one spouse has everything titled in his/her name and the other spouse has nothing in his/her name because that disregards the fact the contributions of the both spouses helped to create the wealth that is simply titled to one of them. If you looked at just the title, one spouse would walk away with everything and the other with nothing without any regard for the idea that marriage is a partnership. So the idea of equitable distribution divorce laws is to account for that by dividing up the property held by the spouses that were accumulated during the marriage in a more equitable fashion rather than simply looking at the legal title to the property. In general, equitable distribution laws in non community property states try to duplicate to some extent the result you get in a divorce in a community property state as that result is considered to be more fair. Thus, equitable distribution states will, solely for purposes of dividing the property in the divorce, determine what is “marital property” and divide that up among the spouses much like it was community property. Likewise, a community property state may have divorce laws that allow the court to divide property up differently than just based on the title to the property, again to achieve an equitable result. So the results in some cases may not be all that much different whether the divorce is litigated in a community property state or a non community property state. Bear in mind that your wife already has her interest in community property because that is a form of property interest, not just a set of divorce laws.

    Each state though has different divorce laws and different laws regarding title to property. Even among community property states there are differences, just as there are differences among the non community property states. You will need to consult an attorney in the state where the divorce will be litigated for advice on how that state’s divorce laws will divide up the property. It can get particularly complex when some of the property is located in a different state, since you then have to take that state’s property laws into account. You may find you’ll need to litigate this in the state where you now reside even though you move to a different state.

    The bottom line here, though, is that simply moving to a non community property state now may not make a dramatic difference in the property division. The one thing I can pretty well bet on here is that despite your characterization of your spouse contributing “almost zero” the court isn’t going let you walk away from the marriage with most everything and leave her with very little if the marriage lasted for a number of years. Apart from that, without knowing the specific states involved, there is no way anyone can tell you how it will come out and what impact, if at all, your move to the new state would make.

  3. #3

    Default Re: Real Difference Between Community Property and Equitable Distribution

    TaxingMatters, that is an absolutely amazing response and quite honestly the best advice I have received so far despite already having consulted a couple of lawyers. I hope you don't mind me following up with some more details and questions:

    1) Details. I'm actually the female spouse, not that it makes any difference. My ex-spouse was a good-fur-nuthin and I was very foolish to have stuck it out. It was never part of the marital understanding that I would support him indefinitely but that's what ended up happening. (Again, not that it makes any difference but just in case.) I paid for his education. His sister's education. Gifted property to his family. Other details: WA is the community property state. Planning to relocate to either MA or TN.

    2) I'm particularly interested in your statement about rights to property accumulated in non-community property jurisdictions. Since I have been living in WA, I have DE-accumulated assets. All of my remaining assets (all financial) were accumulated in non-community property jurisdictions (DC, and overseas). (My savings all continue to be located outside WA.) One lawyer did mention to me the possibility that might be taken into account in the settlement - i.e., division along equitable lines rather than CP lines. I then received advice (I believe in this forum) that contradicted that. Is there any more information you can give me on this, perhaps links or laws? I know it's very complex but any guidance you can give me would be very much appreciated.

  4. #4
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    Default Re: Real Difference Between Community Property and Equitable Distribution

    1. It shouldn't make a difference either way with respect to sex of each spouse.

    2. Again, details matter. You said that you have been separated from your spouse for 6 years. Property that is accumulated after the couple has separated and has been living apart with no hope of the marriage reviving is generally separate property. The Washington Supreme Court explained the general rules used in Washington as follows:

    To begin our analysis we review and reaffirm certain applicable presumptions. One such presumption is that in community property jurisdictions, assets acquired during marriage are community property. Estate of Madsen v. Commissioner of Internal Rev., 97 Wash.2d 792, 796, 650 P.2d 196 (1982); Harry M. Cross, The Community Property Law in Washington (Revised 1985), 61 Wash.L.Rev. 13, 28 (1986). This presumption is rebuttable by establishing that the acquisition fits within a separate property provision. Cross, 61 Wash.L.Rev. at 29.

    Separate property is defined as property acquired before marriage or acquired after marriage by gift, bequest, devise or descent. RCW 26.16.010, .020; In re Marriage of Brown, 100 Wash.2d 729, 737, 675 P.2d 1207 (1984). Separate property also includes the earnings and accumulations of a husband or a wife while living separate and apart. “When a husband and wife are living separate and apart, their respective earnings and accumulations shall be the separate property of each.” RCW 26.16.140; Aetna Life Ins. Co. v. Bunt, 110 Wash.2d 368, 372, 754 P.2d 993 (1988).

    The “living separate and apart” statute contemplates a permanent separation, a “defunct” marriage. Bunt, 110 Wash.2d at 372, 754 P.2d 993; Cross, 61 Wash.L.Rev. at 34. A marriage is considered “defunct” when both parties to the marriage no longer have the will to continue the marital relationship. Cross, 61 Wash.L.Rev. at 34. In other words, when the deserted spouse accepts the futility of hope for restoration of a normal marital relationship, or just acquiesces in the separation, the marriage is considered “defunct” so that the “living separate and apart” statute applies. Cross, 61 Wash.L.Rev. at 35....

    Community property is all other property acquired by either spouse after marriage that is not separate property.

    In re Marriage of Short, 125 Wash. 2d 865, 870–71, 890 P.2d 12, 14–15 (1995). The court did not discuss there how property held in other states factors into it since that was not an issue in that case. The general scheme of things in Washington in a divorce is that community property is generally split 50-50 and each spouse keeps his/her separate property. However, the court does have the power to change that split to something else if the court finds it is more equitable to do so.

    So, earnings you had post separation would not be community property in Washington, and assets you acquired post separation with separate funds would not be community property either. Thus, as a starting point, that would be your sole property, though as I said the court may consider a different outcome based on certain factors if the court deems it more equitable. To the extent you used community property funds to acquire the asset, though, it may still retain its character as community property, even if the new asset was acquired post separation.

    With respect to real property, the general rule is that the law of the state where the property is located determines how it is characterized. For other property the characterization is generally based on the law of the state where the couple was domiciled at the time the property was acquired. As you can see from these general rules, the characterization of the property as either community property or non community property does not depend on where the spouses are living at the time the divorce itself is filed. That is why simply moving in contemplation of a divorce might not make much difference in the outcome. Which state’s law governs the divorce proceeding will matter, of course, but there is no guarantee that you would necessarily get a better outcome litigating the case in a non community property state. It will still have to take into account what is community property.

    This is all still pretty general. It can get complicated in some cases figuring out which state’s law should apply to characterize the asset and then how to account for that in the divorce laws of the state in which the divorce is being litigated.

  5. #5

    Default Re: Real Difference Between Community Property and Equitable Distribution

    Thank you again, TM, for your extreme helpfulness.

    In terms of post-separation earnings (as opposed to assets), do these come into it? Fact is that when we separated, my assets (cash savings) were at their peak - I had only recently left my job. Since then I have been spending more than I have earned because I have been working part time from home (single mom). So my assets now are considerably lower than they were when we separated. And since I have been in WA, my assets have declined. Bottom line - I have not accumulated any post-separation assets that would be protected.

    What about earnings, though? Do these even factor into the equation? Neither child support or spousal support are retroactive in WA. So I'm not sure how my earnings since separation would come into the settlement.

    The most important paragraph for me in your response is the second-last one: "With respect to real property, the general rule is that the law of the state where the property is located determines how it is characterized. For other property the characterization is generally based on the law of the state where the couple was domiciled at the time the property was acquired......"

    All of my assets reflect earnings in jurisdictions other than WA. (Note, in case it makes any difference, that they pretty much all involve cash savings as I have been very bad about investing, but there is also an employer-based pension and a small IRA). Your sentence above is very clear about the implications of that ("the characterization is generally based on the law of the state where the couple was domiciled at the time the property was acquired"). The lawyers I have consulted here do not seem very aware of this principle. Can you point me to any documentation/links where it is discussed/confirmed? I would so appreciate this! I think the entire nature of any divorce settlement for me will hinge on this principle.

  6. #6
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    Default Re: Real Difference Between Community Property and Equitable Distribution

    Quote Quoting Martin18
    View Post
    Thank you again, TM, for your extreme helpfulness.

    In terms of post-separation earnings (as opposed to assets), do these come into it? Fact is that when we separated, my assets (cash savings) were at their peak - I had only recently left my job. Since then I have been spending more than I have earned because I have been working part time from home (single mom). So my assets now are considerably lower than they were when we separated. And since I have been in WA, my assets have declined. Bottom line - I have not accumulated any post-separation assets that would be protected.

    What about earnings, though? Do these even factor into the equation? Neither child support or spousal support are retroactive in WA. So I'm not sure how my earnings since separation would come into the settlement.

    The most important paragraph for me in your response is the second-last one: "With respect to real property, the general rule is that the law of the state where the property is located determines how it is characterized. For other property the characterization is generally based on the law of the state where the couple was domiciled at the time the property was acquired......"

    All of my assets reflect earnings in jurisdictions other than WA. (Note, in case it makes any difference, that they pretty much all involve cash savings as I have been very bad about investing, but there is also an employer-based pension and a small IRA). Your sentence above is very clear about the implications of that ("the characterization is generally based on the law of the state where the couple was domiciled at the time the property was acquired"). The lawyers I have consulted here do not seem very aware of this principle. Can you point me to any documentation/links where it is discussed/confirmed? I would so appreciate this! I think the entire nature of any divorce settlement for me will hinge on this principle.
    If you have not been providing any spousal support to your estranged husband for the last 6 years I would certainly recommend that you argue against spousal support now. If he has been supporting himself for six years without your assistance he should not need your assistance now.

  7. #7

    Default Re: Real Difference Between Community Property and Equitable Distribution

    llworking, I apologize for not replying earlier - thanks for your feedback. Yes, I have been advised that spousal support is only an outside likelihood. Fingers crossed!

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