Any property that is equally owned by both spouses is marital property, or “community property” in states that follow community property laws. Upon legal separation or divorce, community property is to be divided equally between the two parties. This is different from separate property, which is individually owned by one spouse and will remain in their sole possession after a divorce. Put simply, property that is obtained during marriage is classified as community property. However, only a minority of the states follow community property rules. The rest of the states divide property according to principles of equitable distribution.
In a community property state, most of the following items of property will be considered community property:
- Property bought using communal funds during a valid marriage
- Non-community property (non-community property) that has been labeled as community property through a valid written agreement between the two spouses
- Non-community property that has been commingled or merged with marital property such that it cannot be distinguished as an individual’s property
- Property wherein both spouses’ names appear on the title
Since some states operate according to community property principles while others do not, moving from state to state might have some effects on the couple’s property, depending on the specific laws of the new area of domicile.
However, in general, property acquired as community property in a community property state is not automatically converted into non-community property when moving to a common law state. Community property retains its characterization when the couple moves from the community property state to a Non-community property state.
If while in the new state of residence, the community property is exchanged for other property, the property obtained is usually considered to be community property. Likewise, if the community property is sold and the funds used for a purchase, that purchase will also be considered community property.
If property is obtained by one spouse in a non-community property state, that property is considered separate property. If the separate property is brought with the couple when they move to a community property state, then the property remains characterized as separate. In other words, separate property is not automatically converted into community property just because the couple has moved out of a non-community property state to a community property jurisdiction. Again, if the separate property is exchanged or sold for money, then the property obtained will likely be considered separate property the owning spouse.
Some community property states also follow rules regarding “quasi-community property”. Quasi-community property is property that is obtained by a couple living in a common law state that would have been shared property if they were living in a community property state. Quasi-community property is treated like community property when the couple moves into a community property state.
Separate and community property basically retain their characterization when a couple moves to a state with different marital property laws. Check your local laws to see if quasi-community principals apply. Finally, one of the main issues that arises when a couple moves to a different state is the inheritance taxation based on a death of one of the spouses. Death taxes may differ according to state and according to whether the property is considered community or separate property.
If you are moving from a community property state to a non-community property one, you may wish to consult with a family lawyer to determine how this would affect your assets. Every state has different property laws, which could result in different outcomes depending on the state. Also, you may need to hire an divorce lawyer if you are facing a separation and anticipate disagreements over the distribution of assets.