In some states, including California, property that was acquired during the marriage is generally considered part of the “community” and is typically divided equally between the spouses. Issues with regard to community property can arise in divorce and after the death of a spouse. We understands how it works and can help you create the appropriate estate plan.
Why the distinction is important
After the death of a spouse or even divorce, spouses are often left with the overwhelming task of splitting up property and assets, including cars, furniture, and family homes. We understand that the nature of your property is an important factor. Recognizing how the ownership of community property can affect the estate planning process is key.
The legal definition of “community property”
California, as well as eight other states, is considered a community-property state. That term applies to married couples and generally means that any property acquired during the course of the marriage is considered to be owned by both spouses equally. In the alternative, any property that a spouse acquired before the marriage is considered separate property. There are some exceptions. For example, all gifts or inheritances received by only one spouse constitute separate property, even if they are received during the marriage.
What is the theory behind community property?
The theory behind community property is similar to that of a business partnership. Each spouse, theoretically, contributes labor and perhaps capital to the marriage for the benefit of the marriage or “community.” As such, each spouse shares equally in all profits and income earned by the community from the industry and efforts of either spouse. As a result, each spouse in a community state automatically owns a 50% interest of such community property.
Spouses share debts in the same way. Depending on the law in a particular state, creditors of spouses may have access to all or part of the community property, regardless of the title of ownership, in an effort to satisfy debts owed by either spouse. State laws may differ on this issue, so discuss this with an experienced and qualified estate planning attorney.
How the death of a spouse affects community property ownership
In most non-community property states, normally referred to as common law states, there are laws that will prevent spouses from disinheriting each other. In fact, most states will award a surviving spouse, at a minimum, one half or one-third of the deceased spouse’s property. On the other hand, with community property, in the event of the death of one spouse, the surviving spouse is considered to a portion of the property owned by the deceased spouse an all of the property jointly owned by the spouses.
How can community property affect estate planning?
When an experienced and qualified estate planning attorney works on your estate planning, he or she recognizes that each spouse is only allowed to dispose of their 50% share of the community property, whether it is by trust, will, or some other estate planning tool. The remaining 50% will be disbursed to the surviving spouse upon the death of the other spouse. A spouse can choose, however, to leave their share of the community property to the other. This rule applies to couples who live in a community property state, as well as spouses who own property that is located in a community property state.
How does divorce affect the distribution of community property?
When a couple living in a community-property state divorce, that community property is usually divided equally between the spouses. They are entitled to keep their own separate property. That is different from other states where the assets and earnings that were acquired during the marriage are divided equitably or fairly, as opposed to equally. It is important to remember that, if a married couple does not legally divorce, but simply separates, the surviving spouse is not entitled to any of the deceased spouse’s property.
Avoiding disputes over marital property with proper estate planning
As experienced and qualfied estate planning lawyers know, the first step in estate planning where community property is involved is to accurately distinguish between community property and separate property. But that is not always a simple task. Indeed, it can become even more complicated when spouses get remarried and retain separate property from prior marriages.
Under California law, there is a strategy married couples can use to change their property status from separate to community, or the other way around. This process is known as “transmutation.” If a couple makes this election, the estate planning attorney must make sure the estate plan is consistent with the changes in ownership.
Download our FREE estate planning checklist today! If you have questions regarding community property or any other estate planning issues, please contact us at the Northern California Center for Estate Planning and Elder Law for a consultation. You can contact us either online or by calling us at (916) 437-3500. We are here to help!