Community Property and Divorce

• Posted on April 24, 2008
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Long Island CPA Firm Offering Tax and Financial Advice

In community property states, community income must be divided between spouses as required by state law. In general, community income is that earned while spouses live together. Married taxpayers domiciled in the following states are subject to community property rules: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Local law determines the definition of when a spouse begins receiving separate income. California law, for example, says separate income begins from the date of separation.

Community Property Rules Disregarded - Community property rules won't apply to an item of community income, and a taxpayer has responsibility to report it if:

  (A) The taxpayer treats the item as if only he/she was entitled to it, AND

  (B) The taxpayer doesn't let his/her spouse know the nature and amount of the income by the
         extended due date of the tax return in question.

A taxpayer won't be held responsible for reporting an item of community income if all of the following apply:

      (1) The taxpayer doesn't file a joint return,

      (2) No item of community income is included on the separate return,

      (3) The taxpayer didn't know of the community income, and

      (4) Based on the circumstances, it wouldn't be fair for the taxpayer to include the community 
            income on his/her return.