A community property designation can have a significant impact on your property rights. Whether something is considered community property, marital property, or separate property can determine whether you have the legal right to bequeath the asset as part of your estate plan and whether the property may be at risk in case of divorce. Learn whether Florida is a community property state and how Florida courts divide property after divorce or death.
How Is Property Divided in a Divorce?
Divorce is based on state laws. How property is divided in case of a divorce depends on state law. Most states use either a community property system or common law system.
Community property states generally use a more straightforward approach. All marital property is divided 50/50. In common law states, divorce courts split the property in an “equitable” manner, which may or may not be an equal split. This is why these states are sometimes referred to as equitable distribution states. In these states, divorce courts may consider a variety of factors to determine what is fair, such as:
- The length of the marriage
- The identity and value of their separate property
- The age and health of each spouse
- The custody arrangement
- The desirability of maintaining the marital home as a residence for the children
- The earning capacity of each spouse
- The tax benefits or drawbacks of different arrangements
- The liquidity of the marital property
- The amount and sources of income of each spouse
- The needs of each spouse
- The liabilities of each spouse
- The desirability of retaining an asset from the legal claim of the other
- The contributions to the marriage by each spouse, including as acting as a homemaker, contributing to the care and education of the children, or contributing to the other spouse’s career or education
- Any interpretation of the spouse’s career or educational opportunities
Some jurisdictions consider marital misconduct when dividing property while others do not. In Florida divorce courts, the intentional waste or depletion of marital assets is considered when dividing the property.
How Is Property Inherited at Death?
Generally, people can determine how they want their property to pass after death by writing a last will and testament or other estate planning document. There are rules about disinheriting a spouse, and a spouse may have a right to a statutory share. If the person dies without a will, the state’s laws on intestate succession apply. These laws determine who stands to inherit and in what proportion if the person dies without a will.
In Florida, the priority for inheriting from someone goes in the following order:
- Surviving spouse
- Children
- Parents
- Siblings
- Other surviving family members
Whether a particular family member stands to inherit depends on the family composition. For example, in Florida, if a person dies with a spouse and has children with that spouse, the spouse inherits 100% of the estate. If the decedent has a spouse and children but the children are not the surviving spouse’s children, the spouse inherits 50% of the estate and the decedent’s children receive the other 50%. If a spouse has no spouse but has children, the children inherit. If a child predeceases the decedent, the grandchildren in that same branch can stand in the place of their parent.
In community property states, the surviving spouse of a decedent who died intestate may have the right to receive all of the community property state and part of the separate property.
Community Property States
Like most states in the union, Florida is an equitable distribution state, not a community property state. In community property states, all assets and earnings made during the marriage are generally equally owned by married couples, so if they get a divorce, they are split 50/50. There are only a handful of states that are community property states, which include:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
Additionally, Alaska, South Dakota, and Tennessee have an opt-in community property law that allows married couples to treat their property as community property if they both agree.
Registered domestic partners in California, Nevada, and Washington are also subject to community property laws.
Even though Florida is not a community property state, community property principles may still apply, such as if you owned community property in another state where you live or you create a Florida community property trust, discussed below.
Effect of Community Property Designation
If your property is classified as community property, this can have a significant impact on your property rights for marital property. When property is acquired, it may be automatically assumed to be and treated as community property, regardless of whose name the property is in.
Community property laws require a divorcing couple to split their assets 50/50. However, this only applies to marital assets acquired while the couple was domiciled in the community property state. Other property that either spouse owns may not be considered in a divorce for the purpose of distributing assets or might be divided, depending on the applicable state law.
Community property generally applies to all assets and income acquired and earned by either party during the marriage, regardless of whose name the asset is titled in. This might include:
- All income
- Real property
- Personal property
- Other property acquired with community property
- Retirement accounts
- Checking and savings accounts
Community property principles also apply to debts, which must be split equally between the spouses, too.
The general rule is that a divorce court in a community property state splits the property 50/50 between the parties unless they agree otherwise. Joint property may be sold at fair market value and then the proceeds are split between the spouses.
Community property often passes to the surviving spouse in the case of death if the decedent dies intestate. However decedent left a will or settled a trust, they can stipulate a more custom distribution of their share of the community property.
Community Property vs. Equitable Distribution
Equitable distribution rules are used when community property rules do not apply. In these jurisdictions, property can be divided in an equitable manner, which might not be 50/50. Additionally, how the property is titled may or may not impact whether the property is considered marital property or separate property. The court has more flexibility in determining how to divide property and can consider various factors to establish a fair distribution. In some states, even a spouse’s separate property may be considered or used to make a settlement fair for both spouses in certain limited scenarios.
What Is Marital Property in Florida?
Florida law defines marital assets and liabilities as any of the following:
- Assets acquired during the marriage – Marital property is generally anything you or your spouse acquire during the marriage with marital funds. It may not matter which spouse purchased the asset or whose name it is titled in.
- Liabilities incurred during the marriage – Just as any property you acquire during the marriage, debts you incur during the marriage are considered marital debts and subject to division during divorce. For example, if your spouse took out a credit card in his name during the marriage, you might still be on the hook for paying off the debt.
- Real estate owned as tenants by the entireties – If real property is titled as tenants by the entireties, it is considered a marital asset, regardless of when the property was purchased.
- Personal property titled jointly – Likewise, all personal property held as tenants by the entities is considered marital property. The same principle applies if the personal property is titled jointly.
- Enhancement in the appreciation of nonmarital assets – The increased value of nonmarital assets that arises because of the efforts of either spouse, contributions, or expenses paid by either spouse is also considered marital property. This concept commonly applies in cases involving a business or real property.
- Paydown on nonmarital real estate – The amount of principal that you pay down on a mortgage or note, even when secured by nonmarital real property, is considered marital property.
- Interspousal gifts during the marriage – Gifts you and your spouse give each other are considered marital property and subject to division.
- Certain retirement and employment benefits – Certain retirement benefits accrued during the marriage, including profit-sharing, retirement, annuity, pension, deferred compensation, and insurance plans and programs benefits whether vested or nonvested are considered marital property, regardless of which spouse’s name they are in. For example, your spouse may have a right to a portion of your Individual Retirement Account (IRA) or 401(k).
The general rule in Florida divorce cases is that marital property is divided during the divorce while the non-marital property remains with the spouse that owns it.
What Are Nonmarital Assets in Florida?
Florida law generally considers the following types of assets nonmarital property:
- Property acquired before the marriage – Property that was obtained prior to the marriage is generally considered the separate property of the spouse who owned it unless it is later comingled or transferred to the other spouse.
- Inheritance or separate gifts – Gifts that are made just to your spouse or an inheritance given to only them are considered separate property.
- Income derived from nonmarital assets – Income that is generated by nonmarital assets, such as from rental income from real estate that is separate property, is also considered a nonmarital asset.
- Assets excluded by agreement – Property that would otherwise be characterized as marital property can be considered nonmarital property when you and your spouse enter into a valid, written agreement about it.
Florida Community Property Trust
Even though the state of Florida is not a community property state, community property principles may sometimes be involved, such as when creating a Florida community property trust. This type of trust is relatively new and was established by law in July 2021. This type of trust offers potential tax benefits to spouses.
Florida community property trusts allow married couples to invest in property, realize a gain in that property, and minimize the amount of capital gains taxes by avoiding a step-up in basis for taxation purposes. Without this type of arrangement, surviving spouses might otherwise owe significant capital gains. For example, if surviving spouse Anita inherits stock that increased in value from $1,000 to $10,000 when her husband Bertrard died, Anita could be taxed on the gain of $9,000 if she sold the stock.
Through a Florida community property trust, Anita and Bertrard could buy the stock as community property. When Bertrard dies, half of the stock’s value ($5,000) is included in his estate. Because it is community property, Anita will now own all of the investment, and her new adjusted basis will be $10,000 as she realizes a full fair market value step-up in basis. If Anita sold the stock, she would not recognize a gain, so she would not be subject to capital gains tax.
The Power of the Prenup
You may be able to escape the community property or marital property treatment by entering into a valid prenuptial agreement. Florida statutes respect the right of people to enter into agreements of their own making and will generally uphold such agreements as long as they are not patently unfair. Therefore, if you do not want certain assets to be considered marital property, you could consider entering into a prenuptial or postnuptial agreement. A family law attorney may be able to help you
If you have an existing prenuptial agreement, be sure you mention it to your divorce attorney because it can have a significant impact on your case. Also, mention your prenuptial agreement to your estate planning attorney to ensure that the plan you create corresponds with the information in your existing prenuptial agreement.
Importance of Domicile
Your rights could be affected if you own property in multiple states. The question of whether you are subject to community property laws depends on which state you are domiciled in. Considerations for which place is your domicile or permanent legal residence include:
- Where you live most often
- Where you pay state taxes
- Your social and occupational connections in each state
- Where you vote
If you move to Florida and make Florida your domicile, community property will still retain this status. However, the property you acquire in Florida will be considered marital property and subject to equitable division.
Takeaway
Even though Florida is not a community property state, community property principles could still affect you and your estate plan. Speak to a knowledgeable family law or estate planning attorney for information specific to your situation.
I’m a Beneficiary – When Will I Be Notified of My Loved One’s Death?