There are nine community property states. Alaska also allows married couples to opt into a community property arrangement. Community property states typically consider any property acquired during a marriage to be jointly owned by both spouses, regardless of who made the purchase or what the title says. This is important in bankruptcy because creditors may be able to access community property if one spouse files bankruptcy.
Written by Jonathan Petts.
Updated June 29, 2022
The term community property can be confusing. Most of us have heard the term in connection with the way property is divided in a divorce case. But the difference between community property and separate property is important for other reasons. For instance, the creditor of one spouse may be able to reach community property (for example, through repossession) even when they would not be able to reach separate property of the other spouse.
Here’s how community property states are different, why it matters to you, and how it may impact debt collection and bankruptcy.
Community Property States
Nine U.S. states are community property states. That means they consider most property acquired during marriage to be joint property of the spouses, no matter how the property is titled.
Imagine, for example, that one spouse purchased a boat during the marriage. The boat was purchased with that spouse’s own earnings and titled only in that spouse’s name. In a community property state, that boat would generally be considered community property from the moment of purchase. In a state without community property laws, the boat would be the separate property of the spouse who purchased and registered it.
The community property states are:
Specific rules are different from one community property state to another. For instance, California is a community property state, but spouses can agree to classify their property differently. Alaska is not a community property state, but married couples can agree to opt in to a community property arrangement.
Community Property vs. Marital Property
The concept of community property can be tough to understand because it’s often confused with marital property. During a divorce, the rules for what is considered community property and what is considered marital property are similar. But there are two key differences in how these terms are used in most states.
The first difference only comes up in a divorce case. In a community property state, most property acquired during the marriage is divided 50-50 between the spouses. In a common law state (sometimes called an “equitable distribution state”), the court divides property acquired during the marriage in a way they think is fair to both parties. So, even if the marital property is exactly the same, the way it’s divided may be different.
The second difference matters all the time. In a common law state, each spouse can buy or receive separate property during the marriage. In the example above, the spouse who bought the boat and registered it in their own name would own the boat during the marriage. Generally, creditors of the other spouse couldn’t touch the boat. And, if the spouse who owned the boat died, it wouldn’t necessarily go to the surviving spouse. That would depend on the terms of the boat owner’s will.
In a community property state, most debt one spouse takes on during the marriage is considered community debt. Creditors can go after community property to pay community debt. So, the other spouse’s creditors might be able to pursue the same boat, bought and registered the same way.
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What Is Separate Property in a Community Property State?
Again, community property laws vary slightly from state to state. Generally, in a community property state, property will be treated as separate if:
One spouse owned the property before the marriage
The property was gifted to or inherited by one spouse alone
The property was purchased separately and not mingled with community property
The spouses have agreed that the property will be separate, following the laws of their state
Bankruptcy in a Community Property State
If you’re married and considering filing bankruptcy, you may be unsure whether you should file individually or with your spouse. The answer is different for everyone. When making the decision, it’s important to know whether you are in a community property state.
In a common law state, only property the filing spouse actually owns is listed in the bankruptcy schedules. In a Chapter 7 case, the trustee can only take non-exempt property belonging to the filing spouse to pay creditors. So, if one spouse has accumulated a lot of debt during the marriage and the other has not, it may make sense to file individually.
In a community property state, all community property must be listed in the bankruptcy. Most debt that either spouse accumulated during the marriage will be considered community debt. And non-exempt property of the community can be used to pay community debt. That means the other spouse’s share of community property may be at risk.
On the other hand, community property isn’t available to pay separate debts of one spouse. So, if the filing spouse accumulated most of the debt included in the bankruptcy before marriage, the case will play out very differently.
If you’re considering bankruptcy or just facing problems with debt, it’s important to know whether you live in a community property state. It’s also important to figure out what property belongs to you or your spouse individually and what is community property. If you’re unsure of how your property will be treated in debt collection or bankruptcy, you may want to consult an attorney.