Community property vs. equitable distribution

Demystifying Valuation, Economic Damages + Forensic Accounting

In divorce proceedings – absent a prior agreement between spouses – marital property is apportioned by the court to each spouse, depending on the state in which divorce proceedings are conducted. Marital property may be divided between spouses by the community property model or by the equitable distribution model. So, what’s the difference between community property and equitable distribution?

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Community Property Model

In the context of divorce proceedings, community property comprises of all income, assets and liabilities acquired during a marriage. All income, assets and liabilities acquired during a marriage by either spouse belong to both spouses.

Assets and income acquired by inheritance or gift are excluded from community property. Assets, debts and income acquired before a marriage are also typically not included in community property. All assets, income and debts acquired before a marriage are referred to as the “sole and separate property” of the spouse who brought them into the marriage.

Under community property laws, the court appropriates the community property 50-50 to each spouse. Community property appropriation is administered on a state-by state-basis during divorce proceedings. The following states utilize the community property model to distribute income, assets and debts between divorcing spouses:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Equitable Distribution Model

In the context of divorce proceedings, equitable distribution refers to the allocation of marital property between spouses in a way that is “fair” or “equitable”. Therefore, unlike community property, the appropriation between spouses is not always 50-50. The court weighs various circumstances like:

  • Length of marriage
  • Financial contributions and circumstances of each spouse
  • Age, health and earning capacity of either spouse
  • Alimony
  • Dissipation of marital assets, etc.

Other than the states mentioned above, all other states utilize the equitable distribution model when apportioning assets between spouses who are seeking a dissolution of their marriage. However, spouses in Alaska, South Dakota and Tennessee may opt into the community property model.

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