Dividing Property and Debts
by Robin Leonard

Thousands of couples divorce each year - and one great mystery is how they divide their property. A common misconception is that a judge makes this decision. In truth, however, it is quite common for divorcing couples to divide their property and debts themselves. Only if they cannot agree would they submit their property dispute to a court. In that situation, the judge will use state law to divide their property.

Division of property does not necessarily mean a physical division. Rather, the court awards each spouse a percentage of the total value of the property. Each spouse gets items whose worth adds up to his or her percentage. Courts divide property under one of two schemes: community property or equitable distribution.

In Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, all property of a married person is classified as either community property, owned equally by both spouses, or separate property, owned by only one spouse. At divorce, community property is generally divided equally, while each spouse keeps his or her separate property.

In all other states, assets and earnings accumulated during marriage are divided equitably, or fairly. In practice, often two-thirds goes to the higher wage earner and one-third to the other.

Couples in community property states - whether dividing property themselves or leaving it to a judge - need to know the difference between community and separate property. There are three general rules to follow:

1. Community property includes all earnings during marriage and everything acquired with those earnings. Generally, all debts incurred during marriage are community property debts.

2. Separate property of one spouse includes gifts and inheritances given just to that spouse, personal injury awards received by that spouse, and the proceeds of a pension that vested before marriage. Property purchased with the separate funds of a spouse remain that spouse's separate property. A business owned by one spouse before the marriage remains his or her separate property during the marriage, although a portion of it may be considered community property.

3. Property purchased with a combination of separate and community funds is part community and part separate property, as long as a spouse can show that some separate funds were used. Separate property mixed together with community property generally becomes community property.