Community property is a type of joint property ownership that stipulates property obtained during a marriage is jointly owned by both the husband and the wife. When there is a divorce, annulment, or death, all property is divided between the two spouses. Community property is considered to be any property that’s purchased with money earned by either spouse during the marriage.
Community Property vs. Separate Property
Not all property owned by the spouses is considered community property. Some property is kept separate and called “separate property.”
Any property that’s owned before the parties marry, is considered separate property. Each spouse is allowed to keep their separate property if the marriage is dissolved or annulled. Similarly, inheritances and gifts are considered to be separate property not subject to the laws of community property. Property purchased during the marriage using proceeds from the sale of separate property is considered separate property. Finally, property purchased after the date of separation is considered separate property even though the parties are still legally married.
Separate property can become so commingled in the marriage that it cannot be separated any more. In this case, separate property becomes community property.
The issue of separate property become important during a divorce orannulment. In a divorce, separate property is kept by the spouse who owns it rather than being divided equally between the two spouses. It’s important to keep good records of property that’s separate vs. community property, especially if you want to keep it in the event of a marriage breakdown.
Spouses can change separate property to community property by signing a written agreement stating the change of ownership type. Similarly, the spouses can sign an agreement that community property will be kept separate. This agreement can be made before the marriage (a pre-nuptial agreement) or during the marriage.
Community Property States
Not every state in the U.S. has community property laws. In fact, only a handful of states have community property laws. These are:
- New Mexico
Alaska does not have default community property state rules, but married couples can create a written contract stating that some or all their property should be treated as community property.
The specific community property laws in each state vary, but they all generally state that property obtained during the marriage is owned by both couples and is divided between the parties in a divorce, annulment, or death. There may be some differences, for example, as to how much ownership each party has to the property depending on their contribution in its acquisition.
In community property states, the way property is titled doesn’t change the community property laws governing property. For example, a property purchased during the marriage may be titled to only one spouse, but in a divorce, annulment, or death, the court would treat the property as if it had been titled to both spouses.
Estate Planning for Community Property
In estate planning, it’s important to know which property is considered community property and which is considered separate property. That way you understand which property is controlled by your will. Unless the decedent’s will states otherwise, half the community property will be transferred to the surviving spouse.
When the decedent’s dictates the property go to someone besides the surviving spouse, those directions supersede the community property laws in that state. Some laws may take into consideration spouses and children from prior marriages before dividing community property after a death. If you have specific desires for what should happen to your property in the event of a death, it’s important to have a will that details your wishes.