Community Property vs. Equitable Division

Community Property vs. Equitable Division

- By : Laurel Date : July 2019

Different states have different laws for ownership of property during a marriage and dividing property upon divorce. For purposes of this article we are considering only the differences upon divorce.

Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are “community property” states. In general, all income and assets earned during the marriage in a community property states belong to the parties equally and are divided on that basis when they divorce.

The 41 remaining states are “equitable division states”. What equitable division means when parties divorce depends on the specific statutes of that state. Although Minnesota is an equitable division state, in practice it is very close to a community property state.

Minnesota Statutes Section 518.003 Subdivision 3b defines marital and nonmarital property:

Subd. 3b.Marital property; exceptions.

"Marital property" means property, real or personal, including vested public or private pension plan benefits or rights, acquired by the parties, or either of them, to a dissolution, legal separation, or annulment proceeding at any time during the existence of the marriage relation between them, or at any time during which the parties were living together as husband and wife under a purported marriage relationship which is annulled in an annulment proceeding, but prior to the date of valuation under section 518.58, subdivision 1. All property acquired by either spouse subsequent to the marriage and before the valuation date is presumed to be marital property regardless of whether title is held individually or by the spouses in a form of co-ownership such as joint tenancy, tenancy in common, tenancy by the entirety, or community property. Each spouse shall be deemed to have a common ownership in marital property that vests not later than the time of the entry of the decree in a proceeding for dissolution or annulment. The extent of the vested interest shall be determined and made final by the court pursuant to section 518.58. If a title interest in real property is held individually by only one spouse, the interest in the real property of the nontitled spouse is not subject to claims of creditors or judgment or tax liens until the time of entry of the decree awarding an interest to the nontitled spouse. The presumption of marital property is overcome by a showing that the property is nonmarital property.

"Nonmarital property" means property real or personal, acquired by either spouse before, during, or after the existence of their marriage, which

(a) is acquired as a gift, bequest, devise or inheritance made by a third party to one but not to the other spouse;
(b) is acquired before the marriage;
(c) is acquired in exchange for or is the increase in value of property which is described in clauses (a), (b), (d), and (e);
(d) is acquired by a spouse after the valuation date; or
(e) is excluded by a valid antenuptial contract.

That is pretty much the same definition of marital property you will find in community property states. The difference occurs in the presumption of how it will be divided in the event of a divorce. In community property states each party is to get half under normal circumstances.

Minnesota Statutes Section 518.58 controls the division of property in divorce actions in Minnesota. The portion of the statute that is relevant to this discussion is below.

Subdivision 1.General.

Upon a dissolution of a marriage … the court shall make a just and equitable division of the marital property of the parties without regard to marital misconduct, after making findings regarding the division of the property. The court shall base its findings on all relevant factors including the length of the marriage, any prior marriage of a party, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities, needs, opportunity for future acquisition of capital assets, and income of each party. The court shall also consider the contribution of each in the acquisition, preservation, depreciation or appreciation in the amount or value of the marital property, as well as the contribution of a spouse as a homemaker. It shall be conclusively presumed that each spouse made a substantial contribution to the acquisition of income and property while they were living together as husband and wife.

Simply reading the language of the statute would seem to set up two conflicting focuses for division. One is which party has the greater need for assets. The other is which party contributed more in the acquisition of the assets.

Assume that when the parties married they had no significant assets and neither party inherited or were gifted any assets individually during the marriage. Wife gets a high paying job and husband stays home taking care of their one child. Parties are married 20 years and have a marital estate of six million dollars. Husband has some health issues, no vocational training and little opportunity for future acquisition of capital assets. Wife still has a great job. Based on the second sentence in the statute, it sounds as if the husband should get more of the assets than the wife. Based on the third sentence in the statute, it sounds as if wife should get the greater share of the assets. What actually happens?

The Minnesota courts have generally resolved these potentially conflicting directions by working on the presumption that each party should get half of the assets, as would happen in a community property state, and then dealing with the issue of one spouse’s greater need through spousal maintenance (alimony). Therefore, even though Minnesota is an “equitable division” state, that doesn’t mean that the result in regards to property division will be significantly different than a community property state. The language of the statute does, however, leave room for argument for a different division of property if there are extraordinary circumstances.