Q: In a community property state, do all savings/investments get split 50/50 regardless of circumstance?
Scenario: In late 2019, a couple in a community property state decides prior to marriage to keep their finances separate but divides all housing and utility costs equally. However, no prenuptial agreement is signed.
Spouse X earns a base salary income of $70,000 and Spouse Y earns a base salary income of $133,000.
During the 2 years of marriage, Spouse X (due to frugality and a good market) has accumulated over $100,000 in savings and individual 401K. In contrast, although Spouse Y earns an income twice as much as Spouse X, Spouse Y has made several withdrawals from their individual 401K, refinanced their mortgage, accepted mortgage forbearance, and has spent frivolously—therefore unable to save/invest.
In the event of a divorce in a community property state with no children, would Spouse X owe Spouse Y half of their individual savings and 401K that accrued during the short marriage since it’s considered marital property?
A:
Absent a written agreement otherwise, all assets acquired during the marriage are presumed to be community property. Property acquired by gift or inheritance is separate property, but the person claiming that they are separate would have the burden of proving that. If community property was used to pay debt on separate property, there may be a reimbursement claim for 1/2 of those funds.
What this means is that in general, all assets of both parties will be treated as community property and divided equitably (which usually means approximately 50/50) on divorce, regardless of who earned the funds, and without regard to who saved or spent what.
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