A Brief Explanation of “Community Property”

Jul 5, 2004, 01:08

Summary: There are at least two types of state schemes for the division of marital property at the time of divorce or death. One of these types is called “equitable distribution”, by which the Court is supposed to look at the whole picture of the family’s assets, debts, and resources, and determine what the most equitable division of each, or the total taken as a whole, would be. Another type of distribution scheme is that of “community property”, such as you have in California and other states.

 

There are at least two types of state schemes for the division of marital property at the time of divorce or death. One of these types is called “equitable distribution”, by which the Court is supposed to look at the whole picture of the family’s assets, debts, and resources, and determine what the most equitable division of each, or the total taken as a whole, would be.

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Another type of distribution scheme is that of “community property”, such as you have in California. In a community property state, generally speaking each party (husband and wife) at the time of divorce is entitled to end up with exactly half of the value of the total value of the family assets and resources, minus any family debt and other adjustments (such as exempting property which either the husband or wife owned prior to the marriage).

While this may sound very simple on first blush, consider issues such as “how do you value stock options, and are they the fruit of the marriage (the “community”) or of the person earning the options?”, and “what happens if one spouse has a business prior to the marriage, and during the marriage the other spouse works at the business, increasing its value?” While there are many (and often competing) formulas for working out the right answers to these questions, they serve to demonstrate just how complicated community property issues can be.

Many legal commentators think that the community property system is more fair, as it attempts to force an equal division of the family property, or at least of the value of the property. Others think that giving the Court more discretion to award property or other assets unevenly, as circumstances may suggest appropriate, is more fair.

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