Community property states: tackling marital debts together

Community property laws provide a straightforward system for managing finances as a couple, in marriage or in divorce. It’s a great idea to understand this system even if you’re happily married or considering a financial strategy that will work for you in the future when you meet that special someone. 

In community property states, most things you and your spouse acquire while married belong equally to both of you. This means there's a clear starting point for figuring out a fair split if you do separate. Let's dive into how understanding community property can make navigating the financial side of your relationship easier.

What is community property?

Community property is the property that you and your spouse acquire during marriage, including what you own (assets) and what you owe (debts).  

Both spouses share ownership of community property, no matter who originally made the purchase or signed on for the debt. That is, even if the asset or debt is in one person’s name, both spouses are owners. 

Not everything acquired during marriage is community property. For instance, when one spouse receives an inheritance, it’s separate (but it could unintentionally become community property, and we’ll explain how). Also, a prenuptial agreement will generally take precedence over community property laws, so that’s a way to keep property separate. 

Read more: Money conversations every couple should have before getting married

What are community property states? 

There are nine community property states in the U.S.:

• Arizona

• California

• Idaho

• Louisiana

• Nevada

• New Mexico

• Texas

• Washington

• Wisconsin 

In three additional states, couples can opt in to community property laws:

• Alaska

• South Dakota

• Tennessee

Does community property apply to unmarried couples living together?

You may have to follow community property laws if you and your partner live in a state that recognizes common law marriages or domestic partnerships. A common law marriage is one where there was no marriage license or ceremony. A domestic partnership (called a civil union in some states) is a legal relationship between two committed people who want to gain certain rights afforded to married couples.

California, Nevada, and Washington recognize domestic partnerships once you officially register with the state. Texas is the only community property state that fully recognizes common law marriage. Idaho recognizes common law marriages that were created before Jan. 1, 1996. 

How does community property work?

In a community property state, the things you buy and the debt you take on during marriage are considered shared. Here are a few common examples: 

• Any income you or your spouse earns, whether through a full-time job or a side business

• Physical property, like a car, boat or furniture

• Your home or other real estate purchased during the marriage

• Income from rental properties or stock dividends

• Money accumulated in brokerage and retirement accounts during the marriage

• Debts taken out during the marriage

Community property matters if you end up divorcing or one spouse dies. 

Community property and divorce

In the case of divorce, community property is divided equitably. The judge reviewing your divorce is likely to split everything down the middle unless you and your spouse agree on something different, or one of you can show why a 50/50 split is not fair. 

Read more: What happens to debt in divorce?

Community property and death

In the case of death, community property rules can affect who inherits what, and whether the surviving spouse is responsible for debts. 

If one spouse brings debt to the marriage, is the other spouse responsible?

In most cases, spouses are not responsible for their partner’s debts that predate the marriage. Debt your spouse accumulated before you both got married is generally their responsibility alone. One exception to this rule would be if you opened a joint account or cosigned a loan before officially getting married. 

Why does community property matter for debt?

In the case of death or divorce, you could be held financially responsible for any debts that are considered community property, even if your name isn’t on it, and even if you didn’t know about it. 

Read more: Wife discovers husband had hidden $40,000 in debt for 3 years

Exceptions to community property rules

Not everything is subject to community property rules. If you or your spouse had your own separate assets or debts before the marriage, those won’t be split in the case of divorce unless they become commingled (no longer separate). Property can become commingled in many ways. For instance, if you bought your home before you got married, it’s your separate property. But if you add your spouse’s name to the deed, you now have community property. Similarly, if you came to the marriage with money, it’s separate. But if you use that money to buy a shared home, that money is no longer your separate property. 

Some of what you and your spouse acquire during your marriage may also count as separate property, such as:

• Property protected by a prenuptial agreement 

• Assets you or your spouse separately inherit

• Gifts to either spouse

• Property or debt acquired during legal separation

What if my spouse refuses to cooperate or take responsibility for joint debts?

You're still responsible for joint debts even if your spouse refuses to take any responsibility or work with you to pay them off. (And the reverse is also true.) When you get a loan or credit card, you enter into a legal contract with that creditor. A divorce decree doesn’t make that contract go away.

Read more: Is your partner committing financial infidelity? Are you?

Dealing with debt in community property states

Tackling debt on your own can be done with the right support and tools. Start by talking to an expert. Credit counselors can help you learn strategies for managing your debt. If you’re thinking about divorce, or you’ve already started to separate from your spouse, talk to an attorney who specializes in divorce and estate planning. 

If you’re not sure of your options for dealing with debt, a debt expert can help you figure out which debt solution might be right for your situation. 

• A debt consolidation loan could streamline your debts and potentially get you a lower interest rate. 

• You could negotiate with creditors on your own. Divorce and death are legitimate causes of financial hardship, and many creditors will work with you to deal with the debt.

• A professional debt resolution company could help you resolve your debts for less than the full amount you owe if you are uncomfortable negotiating on your own. 

Any of these options could give you some breathing room as you navigate your way past community property obstacles.

What’s next 

• Take stock of your assets you acquired before the marriage to determine what you own separately.

• Look at all your debts accumulated during the marriage to estimate what you may still owe after the divorce.

• Work with your spouse as best as you can to divide up assets you jointly own. 

• Research options for getting rid of debt.