Living in a community property state may have a huge impact on your bankruptcy if you’re married, separated, or divorced from your spouse.
There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In Alaska, you and your spouse can opt into the community property system.
Let’s take a look at how filing bankruptcy while living in a community property state might impact you:
It’s very important to understand how property ownership is viewed in a community property state because it will determine how some of your household property will be treated in bankruptcy.
- Property acquired BEFORE marriage is the sole property of the spouse who acquired it. For example, if your spouse owned a vehicle before marrying you, that vehicle would not be part of the bankruptcy estate as long as your spouse is not also filing bankruptcy.
- Property acquired AFTER marriage belongs to the “community” (both spouses). This means that even if your spouse purchased a vehicle with their own money, if it was purchased after marrying you, that property belongs to both spouses and will be included in the bankruptcy estate even if your spouse isn’t filing bankruptcy with you.
- Property acquired AFTER a separation (or divorce) belongs solely to the person who acquired it. This means that if you file bankruptcy after separating from your spouse and then your spouse purchases a vehicle (or other asset) that new property will not be included in your bankruptcy estate even if you’re still married to them. This is why it’s important to remember the exact date you separated from your spouse.
In a community property state, each spouse has a full interest in community property. Once that property is divided, the interest is divided. This means that if you file bankruptcy without your spouse and it’s determined that some of your marital property must be liquidated to repay creditors; generally speaking the bankruptcy trustee can only distribute your share of the property to creditors. However, there may be exceptions to this rule since any debts acquired inside a marriage while living in a community property state are considered community debts meaning that both you and your spouse owe the creditor.
To learn more about the affects of living in a community property state when filing bankruptcy, talk to an experienced attorney.