If you are a high-net-worth couple, a military couple, or have lived in multiple states during your marriage, you and your partner might own property in multiple states or may have purchased property out of state. According to the United States Census, 8.2 million people moved from one state to another in 2022. Couples who move between states are more likely to have acquired property (like a car) in another state or may even own real estate outside their current state of residence.
Owning property in multiple states can raise unique family law questions, especially if you plan to file for divorce. Even if you aren’t filing for divorce, couples who are married and own property in multiple states (especially if one state is a community property state and the other state is a common law property state) could face unique estate planning concerns and tax implications that can be addressed by a family lawyer and financial planner.
In this article we’ll explore some of the concerns that can arise when you own property in multiple states and how choosing the collaborative divorce process can help you address many of these challenges.
The Two Systems Governing Marital Property in the U.S.
To understand why owning property in multiple states can impact your divorce, we first need to delve into the fact that there are two systems that govern marital property in the United States. A minority of the states are community property states governed by the community property system (the state of Washington is in this minority). Most of the states are common law property states governed by the common law property system. The differences between these two systems can have major implications for property ownership for married couples.
In a community property state, any income either partner earns is considered shared marital income, and any property or real estate purchased during your marriage using shared marital income will generally be considered marital or shared property.
In common law property states, on the other hand, income earned by each spouse is generally considered their own money, especially they put it in their own bank account to keep it traceable to them, and any property or real estate purchased by only one spouse is considered their sole property.
In a common law state, both partners’ names need to be on deeds and titles for property to be considered shared or marital property, while in a community property state like Washington, it generally doesn’t matter whose name is on the title or deed if the property was purchased after the couple was married. In a common law property state, married couples need to make sure that both partners’ names are on deeds and titles, make sure that they have a prenuptial agreement that clarifies shared ownership, or use money from a shared bank account to purchase the property.
In a community property state like Washington, separate property is any property owned by either spouse before you were married, or any property either spouse received as a gift or inheritance during the marriage. So, if you owned a home in your own name before you were married, the home will, in most cases, remain your separate property if you get divorced. If you had built up some savings before you were married and kept that money in a separate account, the money you had in savings before you were married will likely still be considered yours. Any property or income earned or gained during the marriage is considered community property, or shared property.
While this might seem straightforward, there are situations where separate property can become community property, or where the community could have an interest in separate property, like, say, a situation where community property income or assets are used to contribute to the increased assets of separate property. An example would be the use of marital shared income to invest in a business owned as separate property, or the use of community income to make improvements to a home owned as separate property by one spouse. Because of these complications, couples are wise to go over their division of property decisions with the help of a divorce lawyer.
Under Washington law, property doesn’t have to be split 50-50. The courts divide property in a manner that a judge will consider “just and equitable.” Under Washington state law (RCW 26.09.070), the court can consider the following factors when dividing property: “the nature and extent of the community property,” “the nature and extent of the separate property,” the length of the marriage, and the economic circumstances of each spouse.
Under Washington law, separate property can be considered fair game in divorce. If one partner has a higher earning capacity, or separate property of significant value, the lower earning partner might keep the family home, or a higher percentage of the community property to ensure that they can support themselves. If the children will be living with one spouse in the family home, this might also be considered during property division.
When couples take their property division disagreements to a judge, there is always the risk that a judge might make a decision that neither party likes. For this reason, more couples are choosing to settle their divorces outside of court, and many are choosing the collaborative process to do so. More on that below.
Issues That Can Arise When a Couple Owns Property in Multiple States
High net worth couples who own property in multiple states, military couples who move frequently and who purchase property in multiple states, and couples who happen to own property in multiple states due to frequent moves or travel, might need to work with a family lawyer, estate planning lawyer, or financial planner from the outset, because when a couple owns property in both community and common law property states, there can be tax implications and estate planning consequences.
At the advice of tax professionals or other professionals, couples might have already taken steps to clarify either shared or separate ownership of the property, either through a prenuptial agreement, postnuptial agreement, or through specifically putting both partners’ names on the deeds or titles. If this is the case, and you are planning to get divorced, these agreements would most likely guide how property is divided in your divorce.
Yet, if you own property in multiple states, but never entered into a prenuptial or postnuptial agreement, or didn’t take steps that clarified shared or separate ownership, questions can arise about whether property is shared or separate, depending on where the property is located, and where you live when you file for divorce. You and your partner might have your own thoughts about what property is shared and what property is separate, but these thoughts may not always align with the law of the jurisdiction where the property is owned or align with the laws of where you file for divorce.
What Happens When You Move from a Common Law State to a Community Property State?
If you got married and acquired property in a common law property state and then move to a community property state, like Washington, how should property be treated under the law? According to ACTEC Law Journal, “a question arises as to how property acquired under one property system should be treated under the other property system.” In general, the courts found that the laws of the state where the couple resided when personal property was acquired during the marriage governs the ownership of the property.
So, if you lived in a common law state, got married, and purchased property held in only one spouse’s name, that property would be generally considered separate property if you later moved to the state of Washington, even though the property would likely have been considered shared property in Washington. Moving to a community property state doesn’t automatically change the ownership of the property, unless you and your partner specifically take steps to clarify that you intend the property to be jointly owned (by, say, putting the deed in both partners’ names, or by drafting a postnuptial agreement that clarifies separate and marital property).
Yet, the laws governing real estate, are different. Ownership of the property will depend on the laws of the state where the property is located, and whether community or common law applies. Usually, though, the courts in a common law state will consider real estate purchased using shared funds a shared asset.
Division of Property
In re Marriage of Landry, the Supreme Court of Washington ruled about how property should be classified when it was acquired in a common law state. Under the ruling, property acquired in a common law state as separate property would be considered separate property during divorce, even if the couple moves to Washington, a community property state, and even if the couple moves the property to Washington. So, a car purchased as separate property in a common law state that is then driven to Washington when the couple moves, would, in general, be considered separate property during the divorce.
Divorce can get complicated for couples who moved frequently or for military couples where spouses may have lived in different states and acquired separate property in different states. The courts would need to determine where the property was purchased, whether the state used the common law or community property law system, and then apply each state’s equitable distribution laws to the division of property.
Because this can get complicated, the state of Washington “enacted a statute allowing the court to divide all community and separate property on a just and equitable basis” according to ACTEC Law Journal. Separate property will likely remain the property of the spouse who owns it, but a judge could theoretically rule that in the spirit of equitable division, the value of the property should be split or awarded to the other spouse. This law was enacted to “eliminate the administrative burden in classifying and dividing individual assets.”
If you live in Washington state, and own property in Washington state, but you or your spouse files for divorce in a common law state, then the division of property will depend on the laws of the common law state for this situation. Many common law states will look at property purchased in a community property state through the lens of the common law system.
So, if you and your spouse purchased an RV together in Washington, thinking it was a shared asset because you lived in a community property state, but only one spouse’s name was on the title, if you move to a common law state, there’s the possibility that the courts might look only to the spouse on the title. Of course, if community funds were used to pay for the RV, or if both parties’ names were on a loan for the RV, then this could affect how the property is classified. Other states might look to where the property was acquired, and whether it was a common law or community property state.
Equitable Distribution
Under equitable distribution laws, judges have discretion in how they divide property, both separate and shared. Equitable distribution can consider both party’s contribution to the marriage, both financial and otherwise. For example, a mother or father who leaves his or her career to care for the children, might be awarded separate property because his or her role in caring for the children gave the partner who worked the ability to afford that property. The goal of equitable distribution is also to help couples avoid the need for alimony. If the lower-earning spouse receives significant enough assets and property, this may offer enough support so that alimony isn’t required.
When Spouses Live in Different States
Where you file for divorce can affect how property is divided and classified. While many couples simply live in one state and have no choice but to file for divorce in the state in which they live under residency requirements, some couples may live in different states, and military couples are offered more options about where they can file for divorce given frequent deployments and moves. If you are a military couple that has a choice about where you can file for divorce, or if you live in a different state than your spouse, the place you file for divorce will largely govern how property is classified and divided.
Individuals with property in multiple states might try to “forum shop” or file for divorce in a state that they believe would offer a more favorable division of property.
In these situations, disputes can arise about which state has jurisdiction over the divorce. This isn’t always straightforward. For military couples and for couples where both parties live in separate states, this can sometimes be an issue. If a military spouse is deployed, he or she may even be able to delay the proceedings until he or she returns from deployment. Couples who can negotiate not only their divorce settlement, but where they will file for divorce, can avoid the costly and complicated issues that can arise when one spouse claims that an out-of-state court doesn’t have jurisdiction when a spouse files for divorce in a state where he or she doesn’t live.
The collaborative divorce process is one way that couples can avoid these potentially costly conflicts. With collaborative divorce, couples settle their divorce outside of court and decide where they will file for divorce with the help of their collaborative divorce attorneys. If it is unclear where you should file, this can be a point of negotiation during the collaborative divorce process.
Collaborative Divorce When You Own Property in Different States
One way to avoid some of the complexities of dividing property when you own property in different states, move frequently, or are a military couple, is to use the collaborative divorce process. With collaborative divorce, you and your spouse agree to settle your divorce outside of court with the assistance of your collaborative divorce lawyers. Rather than taking your divorce to court where a judge will apply equitable division laws to divide both separate and shared property, with collaborative divorce, you and your spouse can decide for yourselves how to classify property purchased in separate states under different marital law systems (common law or community property).
With collaborative divorce, you and your spouse are free to find creative solutions. You can look at the law of the state where the property was acquired or decide for yourselves which property you intended to keep separate and which property is shared. In some instances, couples have intentions that don’t always align with the law. With collaborative divorce you and your former spouse can honor your intentions and amicably divorce.
If you have questions about how to divide property owned in different states or have questions about whether the collaborative divorce process is right for you, reach out to the collaborative divorce lawyers at Truce Law. Our collaborative divorce lawyers help high net worth clients, clients who live in multiple states, and military couples navigate the unique complexities of divorce.
This article is for educational purposes only and does not constitute legal advice. Every situation is unique. For guidance specific to your circumstances, consult a licensed family law attorney in your area.