A couple married in Minnesota that later moves to a state with community property laws might experience some financial surprises in the event of a divorce. Unless a prenuptial agreement has already been executed, the court would divide the couple’s marital assets equally. This equal division can be avoided if the parties agree to their own formula for separating assets, but, if one person has much to gain or lose, negotiations could stall and then a court would impose community property laws.
In general, community property applies to a person’s business as well. A person could arrange to specifically exclude a business from community property with a post-nuptial agreement that excludes the spouse, but the spouse would have to sign the contract to make it valid. Retirement accounts also fall within the reach of community property laws, and they would be divided between spouses in a divorce even if only one person funded the account.
Community property does not apply to everything. Inherited assets and assets obtained prior to a marriage would be classified as individually owned, but a person must carefully document and track these assets and avoid commingling them in order to prove the exclusion.
A person about to file for divorce might wish to carefully consider these financial consequences. An attorney could inform a person about how community property would apply to marital assets. If a prenuptial agreement is in place, an attorney might also assert the terms of this contract and potentially prevent community property laws from being applied by a court. Additionally, an attorney could advise a person prior to moving to a different state about how a divorce might play out so that steps to protect the person’s interests could be taken before a divorce arises.