Community Property Versus Equitable Distribution. If you and your spouse can't determine how to divide property and debts during your divorce, the courts will divide your assets under one of two basic schemes: community property or equitable distribution. The main difference between community property and equitable distribution is that in community property states, there is an absolute 50-50 split of all property acquired during the marriage. In equitable distribution states, more assets may be considered “marital property,” but the split is not necessarily 50-50.
Community property. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, all property of a married person is classified as either community property (owned jointly by both spouses) or the separate property of one spouse. Marital property refers generally to all of the property acquired by either or both spouses during the marriage. Separate property refers to any property the spouses acquired separately before the marriage or after separation (or in some states after divorce). Separate property also includes any gifts or inheritances acquired by either spouse at any time. There are exceptions to these general rules, which are spelled out in each state's property laws.
At divorce, community property is generally divided equally between the spouses, while each spouse keeps his or her separate property.
Couples in Alaska can opt in to a community property system like the one described above. In South Dakota and Tennessee, spouses can opt in to a modified community property approach by transferring specific assets or property into a valid community property trust.
Equitable distribution. In the remaining states, assets and earnings accumulated during marriage are divided equitably (fairly), but not necessarily equally. In some of those states, the judge may order one party to use separate property to make the settlement fair to both spouses.
What sometimes makes this confusing is that division of property does not necessarily mean a physical division. A court may award each spouse a percentage of the total value of the property. In that event, each spouse will get personal property, assets, and debts whose worth adds up to an assigned percentage. Note that it's illegal for either spouse to hide assets in order to shield them from property division, and if you do this, a court could punish you with sanctions and in some states, by awarding a percentage of the value of the hidden asset to your spouse. In California, if you intentionally and fraudulently hide an asset from your spouse during the divorce, a court could award 100% of that asset to your spouse as a punishment.
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