You are about to get started with a divorce in Nevada and wonder what is community property.
How are community property and community debts divided in a divorce? Read on to know where you stand.
NEVADA IS A COMMUNITY PROPERTY STATE
This means that, in a marriage, the name under which an asset is held does not determine which spouse holds an interest in it. This means that even if you buy a house in your name only while married, the house belongs to both your spouse and you (unless your spouse signed a waiver during the purchase).
What’s important is whether the married couple purchased the house during the marriage—and what source of funds were used to make the purchase.
If you have a prenuptial or postnuptial agreement that addresses property and debts what we say here does not pertain to you. Your pre or postnuptial agreement would prevail.
This article assumes that you live in Nevada and do not have a prenuptial or postnuptial agreement.
HOW EQUITY IN A HOME COULD BE DIVIDED
Let’s say you purchased your home before the marriage and once married, you make the mortgage payments from a joint account. If you live in Nevada, this would give your spouse a right to half of any equity increase in the home since the date of the marriage. Before equity distribution, however, your down payment would be returned to you if you sold the house as a part of the property settlement.
Let’s follow John and Mary for a simplified example of the above.
- Mary purchases a home on her own before her marriage to John.
- She puts $10,000 down on the home.
- Once married, the couple opens a joint bank account and makes the mortgage payment with funds from that account.
- After five years of marriage, they divorce.
- Since the date of the marriage, the home has increased in equity by $30,000.
- They sell the home as part of their marital settlement.
- Mary gets her $10,000 down payment back
- The remaining $20,000 in equity is divided between them.
- Any equity from before the date of the marriage belongs to Mary.
HOW ANY OTHER PROPERTY MIGHT BE DIVIDED
The same goes with any other property purchased after the marriage, such as a car, fine art, or jewelry. In community property states, it doesn’t matter in whose name the property (houses, cars, furniture, art work, electronics, etc.) is held under.
Let’s go back to John and Mary.
- A year after they married, the couple buys a vintage car.
- They use funds from their joint account to pay for it, $16,000 in cash.
- John has the car registered in his name only because it was just easier.
- When they divorce, John gives Mary $10,000 for her share of the car now worth $20,000.
- It doesn’t matter that the car is in John’s name only.
In Nevada, the earnings of either party during the marriage belong to both parties. If one of you makes more money than the other and deposits more into a joint savings account, you’re both entitled to half of those funds, not just what you each deposited into the account.
If you keep ownership of real, or other, property and bank accounts separate and don’t use community funds to augment them or to pay for maintaining them, such as maintaining a house you owned before the marriage, then said property and accounts will remain your separate property.
INHERITED PROPERTY
Inherited property doesn’t fall under Nevada community property, BUT there’s a caveat.
For example, John’s mother passed away two years into his marriage and left him a mortgage-free house worth $200,000.
John never used community assets for upkeep because his mother also left him some money for that purpose. John has never commingled those funds. The house belongs to John only and Mary has no rights to it.
If John quitclaims the house to Mary and himself after he inherits it, Mary now has a right to any equity increase in the house from the time he recorded the quitclaim deed. If the house remains in his name only, but he uses community property funds to maintain the house, Mary now has a claim to the house because John gifted the house to their community interest by using community funds.
COMMINGLING OF FUNDS
We find that commingling of funds, mixing separate property with community property, such as John paying to fix the house his mother gave him with funds from a joint account he has with Mary, is the usual way separate property becomes community property. We refer to this as transmutation. There is a presumption that when you donate separate property to the community that it is a gift to the community interest.
COMMUNITY DEBTS
The parties share any debt entered into by either spouse during the marriage.
Let’s say John took out a credit card in his name only while married to Mary and stopped making payments at some point. Mary is responsible for that debt same as if she’d opened the account herself. Creditors will look to her for payback if John does not pay.
If the final decree of divorce states that John is responsible for paying back the debt, the creditor still has the right to go after Mary for payments if John defaults.
Though Family Court has jurisdiction over John and Mary, it has no jurisdiction over a third party such as a credit card company. Usually, credit card companies do not go after an ex-spouse to collect, but it has happened, and they have a right to collect from Mary.
Same thing with any debt at all, be it a car, a house, furniture, or art work. Say John bought a car during the marriage, in his name only, and he gets the car as a part of the divorce settlement. But, also as a part of their settlement, Mary takes responsibility for the car payments. A year after the divorce, she defaults on the payments: the car company will repossess it from John even though it’s Mary’s debt, not his.
The bottom line is that Nevada is not a title state but a community property state. For the purposes of a divorce, a community is like a partnership with each party reaping benefits for both partners or incurring debt for both of them. The two become one.
NRS 125.150 is where you’ll find the Nevada statutes that pertain to division of property in a divorce.
Do you wonder if you’ll have to pay alimony if you divorce? Or spousal support if you separate? This article will explain it.
If you have questions about how to divide your property in your divorce, or if you’re ready to get started with your divorce, read more here
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