Property acquired during marriage is called marital property. Depending on the state of residence, marital property is treated differently upon divorce. There are two categories which states fall into when it comes to the treatment of marital property; Community Property and Equitable Distribution. Equitable distribution laws are followed by the majority of states. The following states are the exceptions, the community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
In community property states all property acquired by individuals before they enter into marriage is considered the separate property of that spouse. Also considered separate property is anything received by a spouse as a gift or inheritance, even if received during marriage, and any property that can be traced to a separate property asset. This means, for example, that an asset which is purchased entirely by gift money is considered separate property. Lastly, upon separation all earnings are considered separate property of the earning spouse. This separation need not be a legal separation, one formally recognized by a court. Living separately will constitute a separation when it comes to categorizing earnings as separate property (it is important to know the law in the applicable state, as the date of separation is treated differently in different states.) Upon divorce, separate property is awarded to the owning spouse.
Community property is anything that two spouses own together. Any earnings acquired during marriage until the date of separation are considered community property. Furthermore, any assets which are purchased with the community money are considered to be community property and owned equally by the spouses. Like earnings, all debts incurred during marriage until the date of separation are considered community debts. Debts include anything from credit card balances to car loans and house mortgages. This means that both spouses, no matter who earned the money or who accrued the debt, are considered to own the assets and debt in equal parts. Generally, upon divorce community assets and community debt will be distributed equally between the spouses.
Equitable distribution states treat property upon divorce differently. Generally, equitable distribution refers to an equal distribution between spouses. However these states allow for the circumstances during the marriage and after the divorce to dictate which spouse will be awarded which assets as well as which debt. The goal in equitable distribution states is to give each spouse what is “fair" under the circumstances. This means that courts will consider, among other things, how much each spouse contributed to the marriage as far as earnings go, as well as who takes care of the children of the marriage and even the potential earning capacity of each spouse.