Community Property: What is it and How Do I Protect Myself?
Divorce rates are on the rise according to the United States Census Bureau. 2019 data shows that 933,988 men and 1,042,174 women faced the “Big D,” with projections increasing in 2020 and 2021. Let’s face it. The pandemic has been hell on personal relationships, especially those relationships with the people you were forced to spend the most time with a.k.a., your spouse. It may not have been a picnic with your kids either, but getting rid of them is FAR more difficult! That is a joke for those of you who are comically challenged.
It is important to protect yourself during the stressful time of going through a divorce. The last thing you want to think about is finances; however, you must understand and know your rights in the laws of your state of residence. This blog article will focus primarily on Louisiana’s legal regime of community of acquets and gains (that’s legalese that means “community property” in ordinary English). The Pelican State has some unique laws that apply to all married persons who reside in this great, albeit humid, state.
Make sure YOU are protected!
Common Questions to Be Ready to Answer:
· Did you sign a prenuptial agreement?
This is not a trick question! If you did not sign a Prenup before your marriage, your assets are presumed to be community property as per La. C.C. Art. 2340. This generally means all property acquired during the marriage (with some exceptions like, for example, inheritance and personal injury settlements) is owned 50/50 with your spouse. The debts will also usually be 50/50 obligations, and creditors may come after you if your irresponsible spouse ran up credit card bills.
· Has any property been purchased during your marriage that would be considered “separate?”
Did you or your spouse acquire anything, including land, homes, cars, boats, jets, minerals, etc., in which the Cash Sale Deed, Mortgage, Act of Donation, etc., specified the property was one spouse’s separate property and acquired with the separate assets of the spouse? If you are not sure, you will need to gather records that identify you and your spouse’s assets to answer this question.
· What did you acquire during your marriage?
You will need records and/or information about what you acquired while married in order for your attorney to prepare the necessary documents required for a court to partition (legalese for dividing up your stuff) your assets. Providing complete records of cars, investment accounts, properties, stocks, and other large purchases will make the initial meeting with your attorney infinitely more productive.
· Did you acquire anything with your own separate money?
“Separate money” does not include the money you make at your job unless you have a prenuptial agreement or entered into a separation of property agreement with the Court’s permission during your marriage. “Separate money” usually means savings, property, and other assets you owned before the marriage, any inheritance, etc. Be ready to do a little research if you are not sure how something was donated or sold to you. WARNING! Even if you purchase something with your own “separate money,” the “fruits” of that separate property might still be considered community property and your estranged spouse may be entitled to half of the “fruits” unless reserved as separate property as per La. C.C. Art. 2339!
Once you determine 1) what is separate property and what is community property, i.e., what you own together and separately, and 2) whether or not you have any outstanding community debts, you will be in a much better position to discuss your assets and debts with your attorney.
Here’s a scenario that we constantly are presented with at our initial meeting with our clients. The client has moved out of the matrimonial domicile (the place the client lived with the client’s spouse) or the client’s spouse has moved out. Clients often ask something to the effect, “so, the money I have earned and saved for retirement during the marriage is my separate property, right?” The answer is, “not necessarily.” It is a common misconception, but many people believe that the money they earn through their employment, their “personal” business, investment accounts, etc., is solely their property and the spouse has no claim to such property.
Another common misconception is that clients think that because the client paid for the house, car, boat, etc., out of the client’s salary, the client’s spouse does not have any rights to it. Under Louisiana law, any earnings and things acquired during the marriage and before a formal court judgment separating property are presumed to be community property. You may need to read the last sentence again and let it sink in for a minute. At this point, the client usually asks, “even if I was the only one who earned a salary during the entire marriage, my earnings are community property?” The short answer is “yes.”
Unless you have a prenuptial agreement or have property that qualifies as “separate property” under the law, everything you own is presumed to be subject to Louisiana’s community property laws according to Louisiana Civil Code Article 2334, et seq. La. C.C. Art. 2334 states that if you get married in Louisiana or move to Louisiana while married, you are subject to Louisiana’s community property laws. Community property law generally provides that any property acquired during the marriage is owned equally by your spouse. This means any income, businesses, real estate, bonuses, investments, and other titled property are owned by each person in the marriage equally, UNLESS, the property is distinguished as separate property. In some cases, you may be required to sell your community property by the court and split the proceeds so that you both have 50% of the assets after the property is partitioned.
Here is what surprises people the most:
Clients often ask, “do you mean my income is not my separate property?” My response is “your income is presumed to be community property. Your income earned at your job is not your separate property if your marriage involves a community property regime.” Perhaps a couple of more examples will help those of you who are resistant to the reality of Louisiana’s laws.
The client may ask, “wait, my spouse is entitled to half of my Christmas bonus?” My answer is, “yes, if it is community property.”
The client may ask, “that hunting lodge I purchased during the marriage with the money I earned belongs to us both?” My answer is “yes if it was purchased with community property funds.”
Older male clients have been known to ask, “my spouse is a homemaker. Are you saying my spouse is entitled to half of the house I’ve been paying off?” My answer is, “yes.” For the record, it is not my intention to be sexist. The baby boomers and their parents lived in a world where both spouses often did not have to work, where one could retire with a fully guaranteed pension paid for by the company, and other things that have gone the way of the buffalo.
Debts may also be community property. Does your former significant other have a shopping addiction or carry high credit card debts? You may be on the hook for at least part of the debt if it was incurred while you were married and were still in a community property regime. For this reason, we recommend that our clients immediately file for a separation of property after they have been separated for the amount of time required by law.
It may seem very complicated, but an experienced attorney will be able to help you figure out what you owe and what you are entitled to as your share of the community property during this difficult time. So, before you buy that BMW or book a dream vacation around the world to celebrate your divorce, make an appointment so that you understand your rights and liabilities!