In community property states, property and debt acquired while married is divided equally in a divorce. However, in a non-community property state, property is divided by equitable distribution, meaning a judge will divide property in a manner that is equitable or fair and not necessarily equally. Couples divorcing in a non-community property state follow that jurisdiction's rules for division of debts and assets, regardless of whether the couple lived in a community property state at the time the debts and assets were acquired. However, in all states, if the parties agree on a realistic division of property, the court will generally accept their agreement.
In general, community property is any money or property acquired by either spouse during the marriage, such as employment income, business profits or earnings and real and personal property. When divorcing, any debt, money or asset that fits this definition must be divided equally between the parties. If the parties agree that a particular asset will go to one party, the other party must be compensated with an equal amount in other assets. If the parties cannot agree on the distribution of a particular asset, the court will order the asset sold and have the proceeds divided equally.
Money and property acquired prior to marriage is separate property and not subject to equal distribution as is community property. Separate property can be acquired during the marriage in a community property state when that property is inherited or received as a gift by one spouse. In these instances, the inheritance or gift remains the personal and sole property of the party who received it and is not divided in divorce.
Separate to Community Property
A married couple can transfer separate property into community property by mutual agreement of the parties. Such an agreement can be in writing, but it need not be. It is enough that the parties treat property that was originally separate as community property. For example, adding the other spouse to the deed of a house that was originally separate property or depositing separate property funds into a joint bank account is enough to change the separate real property or separate monetary property into community property.
Community Property to Separate Property
A couple can also transfer community property into separate property by mutual agreement. Most community property states require that such a transfer be in writing and signed by both parties. When both parties agree that an item of community property is to become the separate property of one of the spouses, divorce courts usually honor the mutual decision and that property is given in its entirety to the spouse with agreed-upon sole ownership.