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Laws Governing Community Property

Community property is everything that a husband and wife own together and this includes all the earned money, incurred debts and property acquired during the marriage.  Under community property, spouses own and owe everything equally, irrespective of the fact whether the husband or the wife earned or spent the income.  Community property includes everything from personal property ownership to debt to divorce and inheritance.

Community property law is applicable primarily in the United States, and only in those states termed “community property” states.  There are nine states within the U.S. that use the community property system to divide marital assets.  These nine states are: Arizona, Texas, California, Idaho, Louisiana, Nevada, New Mexico, Washington and Wisconsin.

In a state governed by community property law, any assets acquired during a marriage are considered to be community property.  Therefore, all assets acquired by either of the spouses during marriage belong to both spouses equally regardless of how much each spouse individually invested in acquiring the property in question.

In other states, varying forms of law govern the distribution of property.  For example, in Alaska, parties can opt in to a community property system, but this will not be the default rule for property distribution.  Under community property law, some assets acquired after marriage can remain separate if not co-mingled.  For example, if one spouse inherits money from his/her parents, that property does not automatically become community property unless s/he co-mingles the funds with other community property.

In Texas, marital property can be either separate property or community property.  Under the Texas Constitution, community property is the property acquired by either spouse during the marriage and property possessed by either spouse during or on dissolution of marriage is deemed to be community property.  In re Martin, 2009 Bankr. LEXIS 1722 (Bankr. N.D. Tex. 2009), the court ruled that community property can be divided into two sub-types: solely managed and jointly managed. In Texas, property is solely managed community property if it is property that the spouse would have owned if single, including: (1) personal earnings; (2) revenue from separate property; (3) recoveries for personal injuries; and (4) the increase and mutations of, and the revenue from, all property subject to the spouse’s sole management, control, and disposition.

In Birdsell v. Petersen (In re Petersen), 2009 Bankr. LEXIS 196, 14-15 (Bankr. D. Ariz. Jan. 30, 2009), the court stated that the general rule concerning parties in a community property state is that if the parties are married at the time one of the spouses files a bankruptcy petition, then the community property is included as property of the bankruptcy estate. However, under Arizona law, a statutory change now provides that as of the service of the petition for dissolution of marriage, each spouse shall create a separate estate from the property that he or she receives from that date onward. See ARS §§ 25-211 and 25-213. Since the Arizona statutory change occurred in 1998, well before the Debtor instituted divorce proceedings and well before this bankruptcy case was commenced, it is applicable to this proceeding. The statutory change may affect the nature of the bankruptcy estate. For instance, if the non-debtor spouse acquires an asset, with the wages that he has earned after the petition for dissolution of marriage has been served, that asset has been acquired with the sole and separate property of the non-debtor spouse and is classified as the sole and separate property of that spouse even if the other spouse should subsequently file a bankruptcy petition.

The law of the place of domicile of the acquiring spouse at the time of the acquisition governs the determination of whether the acquired property is separate or community property.  In Falk v. Falk, 2008 U.S. Dist. LEXIS 111181 (N.D. Cal. Nov. 5, 2008), the court stated that marital property in California is governed by Cal. Fam. Code § 760 which provides, except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.  California law governs the determination whether marital property is community property or separate property.

Where specific federal statutes covering the matter of the classification of separate or community property is absent, the federal courts shall apply the laws of the local jurisdiction.  The community property system of a state is a comprehensive system governing and controlling all of the property rights and obligations of the spouses during the continuance of the marital relationship or arising from such relationship.  Generally, where a conflict with other laws defining property rights arise, the rules arising from the existence of the marital community prevail over those governing property rights.  In the event of death, community property laws can be vital in determining who receives property. In any community property state, a surviving spouse is considered to own any property owned jointly or by the deceased spouse.

Inside Laws Governing Community Property