If I don’t have a prenuptial agreement, will all the income that my husband and I earn and all the property that my husband and I acquire during marriage be considered community property? And, would it then be split 50/50 if we were to divorce?
In short, while most property acquired during marriage will generally be treated as marital property or community property, not all property or income acquired during marriage is automatically community or marital property. And, it may not necessarily be split 50/50 in the event of divorce depending on the specific state where the divorce is proceeding.
A significant majority of states are equitable distribution states. Equitable distribution does not necessarily mean equal. Rather, equitable distribution means that a court will allocate property in a manner that is fair. Many equitable distribution states recognize that property acquired before marriage is the acquiring party’s sole and separate property and that property acquired through gift, devise, or intestate succession during the marriage is the acquiring party’s sole and separate property.
Marital property would include any property not specifically qualifying as sole and separate property acquired during marriage.
This can include income, real property, vehicles, among other assets. Notably, sole and separate property commingled with marital property can become marital property. When deciding how to allocate marital property in an equitable manner, many equitable distribution states apply a factorial analysis that may include, but not necessarily be limited to, the following:
- Length of the marriage
- The age, as well as the physical and emotional health, of the parties
- The economic circumstances of each party
- The current value of the property to be divided
- The tax implications of the proposed distribution to each party
- The debts of the parties
- The income and property brought into the marriage by each party
- The established standard of living during the marriage
- The contribution of each party to the acquisition, depreciation or appreciation of marital property, as well as the contribution of one of the parties as a homemaker
- The income and earning capacity of each party, taking into account their education, skills, work experience, training, custodial responsibilities as well as the time and expense that would be required to obtain sufficient training in order to be self-supporting at a standard of living similar to that of during the marriage
- Any written agreement entered into by the parties before or during the marriage concerning property division
At least nine states, including Arizona, are community property states. In Arizona, any property or debt acquired before marriage is technically a party’s sole and separate property or debt. Any property or debt acquired during marriage is presumed to be community property or community debt, subject to limited exception.
Exception is made where property is acquired through gift, inheritance, or devise during the course of the marriage, in which case it is a party’s sole and separate property. Another exception to this general rule is where property is acquired after the date of service of a Petition for Dissolution of Marriage, Annulment, or Separation, in which case it is the acquiring party’s sole separate property.
Importantly, Arizona allows for transmutation of property, meaning that the character of the property can be changed from sole and separate property to community property or vice versa. For example, in Arizona if a party acquired a home prior to marriage but deeds the property into both parties’ names after marriage, then the character of the property has been transmuted or changed from sole and separate property to community property.
Similarly, if the parties acquire a home during the course of the marriage and one party later executes a disclaimer of interest in that property, then the character of the property has been transmuted or changed from community property to sole and separate property.
In Arizona, a court is tasked with dividing community property in an equitable manner, which can often result in an equal division of property although that is not required so long as the division of property is equitable. Not all community property states necessarily follow Arizona’s model. Some community property states divide property right down the middle on a 50/50 basis. Consult a local lawyer to better understand your state’s specific laws.
Premarital agreements are effective tools for preventing your sole and separate property from being converted into marital or community property and also a good way to establish what the parties feel is a fair and equitable distribution of their assets and debts. Similar results can be accomplished through a post-marital agreement, although in Arizona the burden of establishing that the agreement is fair and valid falls on the party seeking to enforce the post-marital agreement whereas the burden of establishing the invalidity of the premarital agreement falls on the party contesting the premarital agreement.
Dividing marital assets can be one of the most difficult tasks faced by married couples. Since most states laws vary, it is very important to understand your own states laws and what system will govern a potential dissolution, separation, or annulment of marriage.