In the US, every state has a different set of divorce laws about distributing assets between ex-husband and ex-wife. So if you get divorced in California you may end up with a very different financial settlement than if you had divorced in Massachusetts.
"Community Property" laws v. "Equitable Property" jurisdictions
California and 7 other states (Arizona, Idaho, Nevada, Texas, New Mexico, Louisiana, Washington, and Wisconsin) are so-called "community property" states, having adopted community property laws. Two other jurisdictions, Alaska and Puerto Rico, are "opt in" states, whereby spouses can elect into community property treatment. The community property states are primarily in the West and are based on the Mexican legal system, which was derived from Spanish law.
Simply stated, in community property states, all income earned (and debts accrued) during the marriage are considered "community property" - property belonging to both spouses. Community property includes the portion of retirement accounts accruing during marriage, and all property acquired during the marriage.
In a community property jurisdiction, premarital property and property gifted to a spouse or inherited will be considered "separate property". This separate property stays with the spouse in whose name it is titled if there is a divorce. Alimony rules may soften these community property rules if the result is harsh.
Generally "community property" is divided equally upon divorce. In some community property states, such as Texas, a court has the authority to decree an "equitable" distribution of community property which might be unequal.
Divorce in the other states generally falls under the "equitable property" regime. Under this system, all property is divided on equitable principles, such as length of the marriage, opportunity for future acquisition, earnings potential, and other factors. Premarital, gifted, or inherited property may also be included depending on the facts of each situation. In other words, a Court has the discretion to do what it decides is fair.
Differences in Divorce Rates
I have been intrigued by the reports of high divorce rates in certain states and low divorce rates in others. In recent reports on the divorce rate (see divorce rate by state) among the states with the highest divorce rates are Nevada, Wyoming, and Idaho, three community property states. California was not included in that study because it no longer provides public divorce statistics. However, earlier data and anecdotal information indicates that California also has a very high divorce rate and southern California may be the highest in the country.
The lowest divorce rates are in Massachusetts followed by the District of Columbia, Pennsylvania, New Jersey, Iowa and Illinois. These are all equitable distribution states.
Texas is a community property state with a medium divorce rate. One distinctive aspect of Texas is its extremely restrictive rules on spousal support. In Texas, no matter how long a couple is married, the party receiving alimony is limited to a maximum order of $2,500 per month for a three year duration and only if the marriage was 10 years or longer. The courts limit the spousal support to the shortest possible time for the spouse to begin employment to provide for his or her "minimal reasonable needs".
Although the equitable division of community property can sometimes mitigate the harsh application of this law, Texas may be the state which best personifies Tammy Wynette's famous song Stand by Your Man as a marriage principle for many women.
Do elimination of "transaction costs" increase incidence of divorce?
It makes one wonder why community property states tend to have high divorce rates, and why equitable distribution states tend to have lower divorce rates.
One of the reasons may be the "transaction costs" in divorce. If divorce is very easy, divorce becomes more frequent. If people know that they don't have to share property, divorce is easier.
Take, for example, a marriage in a community property state where one spouse owns a lot of premarital property or inherited property. This wealthier spouse knows that they can leave the relationship with no personal financial impact because it's separate property. Maybe that's why community property states tend to have higher divorce rates.
Consider the multiple marriages and divorces of many celebrities. There may be huge transaction costs in their divorces, but they have enough money to start over in a new relationship without being financially hurt. So a celebrity can leave their marriage easily, while someone less affluent may be stuck working it out with their spouse. The less affluent couple may end up in a very good long-term marriage like the one Huey Lewis and The News sang about in the song Happy to be Stuck With You.
As the lyrics say:
And we've had our ins and outs, but that's the way it's supposed to be
We thought about giving up, but we could never stay away
Thought about breaking up, but now we know it's much too late
Perhaps "being bound by all the rest, like the same phone number, all the same friends, and the same address" as Huey Lewis sings, is not enough to make for a viable marriage. However, a marriage bound up with the familiarity of time, commitment, and affection is something worthy of aspiration. That is not to say that long-term marriage is the most moral option, but that it can be valuable and enjoyable. If there's no easy way out, spouses may be willing to overcome the inevitable obstacles in a marriage.
Which takes us to prenuptial agreements.
As a lawyer and mediator, I have worked on many of these. And I have come to believe that they are usually unnecessary and often serve to weaken the marriage at the outset. A person with a prenup has been given a preset path to divorce with no transaction costs.
While some attorneys and financial advisors recommend prenuptial agreements in order to reduce the financial risk if the couple divorces, a prenuptial can actually serve to increase the divorce risk of the couple. Why should someone stay and work things out when the exit path is so easy?
Financial convenience, though certainly not a reason to stay married by itself, can take a marriage through a rough period so that the couple can grow and the marriage can flourish again. Divorce factors that may contribute to divorce, like prenups, celebrity wealth, or residing in a community property state may lessen the chances of making it through a long-term marriage.
© 2011 Laurie Israel. All rights reserved.
Follow Laurie Israel on Twitter: www.twitter.com/laurieisrael