Dissolution of Marriage and Community Property

Dissolution Decree Ending the marriage Ending the marriage Addresses the following issues Addresses the following issues Community property and debt allocation Community property and debt allocation Parenting plan Parenting plan Custody rights Custody rights Child support Child support Spousal maintenance Spousal maintenance Restraining orders Restraining orders

What is Property? In the context of marriage, property includes: In the context of marriage, property includes: Real Property: Houses and Land Real Property: Houses and Land Personal Property: Furnishings, cars, clothes Personal Property: Furnishings, cars, clothes Financial Assets: Cash, Investments Financial Assets: Cash, Investments Future Interests: Pension funds, life insurance Future Interests: Pension funds, life insurance Contractual Rights Contractual Rights

Community Property Each spouse is regarded as contributing to the well being of the community and equally shares in the financial well being of the community Each spouse is regarded as contributing to the well being of the community and equally shares in the financial well being of the community Each spouse has a one-half interest in any property acquired by the marital community Each spouse has a one-half interest in any property acquired by the marital community

Marital Community

When Does Community Property Matter? There are nine community property states - Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In addition, Puerto Rico is a community property jurisdiction.

Community property becomes an issue when: Community property becomes an issue when: The marriage is dissolved The marriage is dissolved One spouse dies One spouse dies One spouse wishes to dispose of some of the community property One spouse wishes to dispose of some of the community property

Money Flowing Into the Community Almost any money that a spouse earns during marriage is considered community property Almost any money that a spouse earns during marriage is considered community property This includes: This includes: Salaries, wages, and other compensation Salaries, wages, and other compensation “Windfalls” - “Windfalls” - A piece of unexpected good fortune, typically one that involves receiving a large amount of money. Sale of community property Sale of community property Interest and rents from community property Interest and rents from community property

Money Flowing out of the Community In general, property obtained by the couple with community funds becomes community property In general, property obtained by the couple with community funds becomes community property

Marital Community Wife’s Salary Husband’s Labor Husband’s Salary Wife’s Labor COMMUNITY PROPERTY

Money Flowing into the Community from Community Property In general, any funds flowing from community property into the community become community funds In general, any funds flowing from community property into the community become community funds Rent Rent Sale Sale Investment Proceeds Investment Proceeds Interest Interest Appreciation Appreciation

Marital Community RENT DIVIDENDS SALE INTEREST

Separate Property There is a strong presumption that any property or funds obtained during a marriage are community property There is a strong presumption that any property or funds obtained during a marriage are community property However, some property is considered the separate property of one spouse or the other However, some property is considered the separate property of one spouse or the other

Separate Property Separate Property Includes Separate Property Includes Property held by a spouse prior to marriage Property held by a spouse prior to marriage Property received as a gift or inheritance by one spouse Property received as a gift or inheritance by one spouse Rents, interests, or profits from any separate property Rents, interests, or profits from any separate property

Separate Property New property purchased with the proceeds of separate property is considered separate property New property purchased with the proceeds of separate property is considered separate property This concept is called tracing This concept is called tracing If the $$$ used to obtain property came from the community, the new property is community property If the $$$ used to obtain property came from the community, the new property is community property If the $$$ used to obtain property came from one spouse’s separate property, the new property is that spouses separate property If the $$$ used to obtain property came from one spouse’s separate property, the new property is that spouses separate property

= WIFE’S SEPARATE PROPERTY Wife receives inheritance from father Wife uses inheritance to buy new car The car is the wife’s separate property

Gifts & Intimate Personal Property One spouse may give a gift to the other and that gift will be separate property. The intent to give the property as a gift must be obvious. One spouse may give a gift to the other and that gift will be separate property. The intent to give the property as a gift must be obvious. Some property is considered so intimate as to always be considered separate property: Some property is considered so intimate as to always be considered separate property: Clothes Clothes Jewelry Jewelry

Mixed Property It is not uncommon for a couple to use a mixture of community and separate funds to make large purchases such as houses It is not uncommon for a couple to use a mixture of community and separate funds to make large purchases such as houses It is also not uncommon for one spouse to own a house prior to marriage and to make payments on the house from community property following marriage or to use his or her labor to improve the house during marriage It is also not uncommon for one spouse to own a house prior to marriage and to make payments on the house from community property following marriage or to use his or her labor to improve the house during marriage Both of these situations create some of the most confusing issues in community property Both of these situations create some of the most confusing issues in community property

Purchases of Mixed Property When property is purchased using both community and separate property, the property is proportioned When property is purchased using both community and separate property, the property is proportioned

Marital Community $100,000 Couple buys a $300,000 house and uses $100,000 from the wife’s separate property, $100,000 from the husband’s separate property and $100,000 from community property. The house is 1/3 wife’s, 1/3 husband’s and 1/3 Community property

Marital Community $200,000 If the house appreciates to $600,000, the wife has $200,000 in separate property, the husband has $200,000 in separate property and the community has $200,000 in property.

Community Expenditures on Separate Property Two common situations arise when one spouse owns separate property such as a house prior to marriage Two common situations arise when one spouse owns separate property such as a house prior to marriage The community uses its labor to improve the house The community uses its labor to improve the house The community pays the mortgage on the house The community pays the mortgage on the house

Community Labor When the community exerts its labor on separate property, it creates a community interest for that value in the property When the community exerts its labor on separate property, it creates a community interest for that value in the property For example, if a wife owns a house and the husband builds a new deck that causes the value of the house to increase by $50,000, the community now has a $50,000 interest in the house For example, if a wife owns a house and the husband builds a new deck that causes the value of the house to increase by $50,000, the community now has a $50,000 interest in the house

Community Pays Mortgage When the community pays mortgage on separate property owned by one spouse, that spouse owes the community for that expenditure When the community pays mortgage on separate property owned by one spouse, that spouse owes the community for that expenditure For example, if the mortgage on the wife’s house is paid with her salary while the couple is married, she owes the community the value of all of those mortgage payments For example, if the mortgage on the wife’s house is paid with her salary while the couple is married, she owes the community the value of all of those mortgage payments

The House The houses is the wife’s separate property, however the community has an interest in the house from The houses is the wife’s separate property, however the community has an interest in the house from The mortgage paid during the marriage The mortgage paid during the marriage The labor that the husband did on the house The labor that the husband did on the house

Personal Injury Awards Personal injury awards for medical expenses and for lost wages are community property Personal injury awards for medical expenses and for lost wages are community property Personal injury awards for pain & suffering are separate property of the spouse who was injured Personal injury awards for pain & suffering are separate property of the spouse who was injured

Separation A married couple continues to accrue community property until they either divorce or the marriage is defunct A married couple continues to accrue community property until they either divorce or the marriage is defunct Defunct is a legal term that means more than mere separation Defunct is a legal term that means more than mere separation In general, the couple must have no intention of getting back together In general, the couple must have no intention of getting back together

Dissolution of Marriage Upon dissolution of marriage, each spouse gets: Upon dissolution of marriage, each spouse gets: His or her separate property His or her separate property One half of all of the community property One half of all of the community property This does not mean that you split the house in half – it means that the court will balance the distribution of property so that each gets ½ of the total value This does not mean that you split the house in half – it means that the court will balance the distribution of property so that each gets ½ of the total value

Dissolution of Marriage In Washington, judges have a great deal of discretion to equitably distribute the property and give one spouse more or less than 50% of the community property In Washington, judges have a great deal of discretion to equitably distribute the property and give one spouse more or less than 50% of the community property For example, if the husband is a drug addict who has never held a job, the court may not grant him ½ of the community property accrued through the wife’s labor For example, if the husband is a drug addict who has never held a job, the court may not grant him ½ of the community property accrued through the wife’s labor

Death Community property laws limit a spouse’s ability to dispose of property through a will at his or her death Community property laws limit a spouse’s ability to dispose of property through a will at his or her death At death, a spouse may dispose of: At death, a spouse may dispose of: His or her separate property His or her separate property One half of the community property One half of the community property

Community Property and Non- Married Couples Meretricious Relationships Meretricious Relationships Relationships must be stable and marital like Relationships must be stable and marital like Duration of the relationship Duration of the relationship Cohabitation Cohabitation Pooling of resources Pooling of resources Intent of the parties Intent of the parties Purpose of the relationship Purpose of the relationship Parties must know that they are not married Parties must know that they are not married

Equity If a judge finds that a meretricious relationship exists, he/she will use their equitable powers to fairly distribute property based on community property principles If a judge finds that a meretricious relationship exists, he/she will use their equitable powers to fairly distribute property based on community property principles