What Are the Community Property States?

In a community property state, divorce can impact how your finances are divided. Unlike equitable distribution states, community property states handle the division of certain assets and debts in unique ways. While you may intend to build a lifelong future with your spouse, it’s essential to understand your state’s property division laws, as well as what is a community property state. It could affect you, if divorce becomes part of your reality.

A financial advisor can also help ensure you are financially prepared in the event of divorce.

What Community Property Means

To understand community property states, it’s also important to know about equitable distribution. In most states, this is the approach that’s used, meaning that any property acquired during the marriage is owned by the spouse who obtained it.

There’s no strict formula for dividing jointly owned assets like a home, vehicle or bank account. While divorcing spouses and their attorneys can negotiate to reach a fair agreement for asset and debt division, the court must ultimately issue the final order.

In community property states, however, the rules differ. Typically, both spouses have equal ownership rights to all income and assets acquired during the marriage. This means that any bank accounts, real estate, homes, vehicles or other assets accumulated during the marriage are considered jointly owned, regardless of which spouse earned the income or made the purchase.

The same principle applies to debt. Under community property laws, both spouses share equal responsibility for any credit card balances, car loans, mortgages or other debts accumulated during the marriage.

Which States Use Community Property Laws?

As of 2024, there are nine states where community property laws are observed. They go as follows:

Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin

Additionally, some states allow married couples to opt into community property rules. Those states are Alaska, South Dakota and Tennessee. In each state, you and your spouse have to create a community property agreement specifying which assets or debts should be considered equally shared. All three states also allow couples to establish a special trust to hold assets that are treated as community property.

There are a few exceptions, however, that could result in a different division of assets. An exception may apply if:

You or your spouse misappropriates community property at any time before the divorce is finalized
You or your spouse incurs a tort liability that’s not based on any activity that benefits either of you during the marriage
One of you receives a personal injury settlement – those amounts are owned only by the spouse who received them in a divorce
You or your spouse has educational debt; it’s kept separate after the divorce
Your jointly held debts exceed your assets here (in that case, assets and liabilities are divided in a way that’s designed to protect the interests of your creditors)

Community Property States and Assets and Debts Acquired Before Marriage

A couple discuss what is a community property state.

Community property laws specifically cover assets that are acquired after two people enter into a marriage. This means that any assets you brought into the marriage remain only yours if you end up getting divorced. But, it’s important to note that this only applies if you maintain separate ownership of those assets once you’re married. If you add your spouse to your bank account, for example, then it becomes subject to community property rules.

Debts in your own name that you had before getting married are treated the same way. So if you had $10,000 in credit card debt, it would still be your debt post-marriage. But, say you had a mortgage in your name for a home you own. You refinance the home and include your spouse on the new loan. That would automatically make it their debt, as well.

How Retirement Assets Are Divided in Community Property States

Community property division rules cover things like bank accounts, real estate, income, furniture and appliances, collectibles or antiques, vehicles and debts. Retirement accounts also follow similar rules.

With a 401(k) or similar employer-sponsored retirement plan, contributions made before the marriage are treated separately. However, those made after the marriage are considered jointly owned. In fact, the only way to prevent your spouse from claiming a share of your 401(k) during a divorce is if they sign a legally binding agreement acknowledging that someone else can be beneficiary to the plan.

In the case of an IRA, the court will assess the contributions that were made to the account after marriage. This amount is then used as a basis for dividing assets according to community property laws. Essentially, both spouses would be entitled to a 50-50 split, regardless of who actually contributed to an IRA, 401(k) or another retirement plan after the marriage.

Social Security benefits have their own rules. You must be married for at least 10 years in order to be entitled to a portion of your spouse’s Social Security benefits. If you’re in a military marriage, the amount of spousal benefits you’d be entitled to would be based on the number of years your spouse served during the marriage.

How to Protect Your Finances Before Tying the Knot

There is one thing you can do to protect yourself prior to marriage: establish a prenup. “The most important thing to know about a community property state is that without a prenuptial agreement, a person’s spouse has the right to an equal one-half share in all income and assets acquired during the marriage,” says David Reischer, attorney and CEO of LegalAdvice.com.

It may be wise to consult a lawyer about drafting a prenup. Additionally, couples should research how favorably or unfavorably their home states look on adjudicating prenuptial agreements.

“Many such agreements are set aside, depending on the jurisdiction,” Reischer says. “And the ability to enforce a prenup should be a top consideration for anyone looking to protect their wealth with a prenuptial agreement in a community property state.”

Bottom Line

Living in a community property state can add complexity if your marriage doesn’t go as planned. Understanding the laws before marriage and exploring all available options is essential. Taking the extra step of drafting a prenuptial agreement may help you both protect your individual and shared assets. Whatever you decide, it’s important to align with your partner on these matters before saying “I do.”

Financial Planning Tips for Couples

Consider talking to a financial advisor about how to best allocate your assets and debts once you’re married. Luckily, finding the right financial advisor doesn’t have to be hard. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Ideally, you should be discussing your financial goals and situation well before you’re married. For instance, you should both be aware of how much debt the other is carrying, what assets you each own, plus their value, and how much income you’re both earning. From there, you can create a plan for managing your money as a married couple.