In California, property that was acquired during the marriage is 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. When these events occur, spouses are often left with the overwhelming task of splitting up property and assets, including cars, furniture, and family homes. As a Sacramento estate planning law firm, we understand that the nature of your property is an important factor. A common question we are asked is what happens to community property when a couple separates. The California Supreme Court answered that question a few years ago.
The legal definition of “community property”
California, along with eight other states, is considered a community-property state. That term applies to married couples and basically 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 a couple of exceptions. All gifts or inheritances received by only one spouse constitute separate property, even if they are received during the marriage.
How the death of a spouse affects community property ownership
In most non-community property 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 own any property owned by the deceased spouse or jointly owned by the spouses.
How can community property affect estate planning?
When Sacramento estate planning lawyers work on your estate planning, they recognize 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.
What happens when a Sacramento couple separates?
Sacramento couples who are considering separation instead of divorce should understand that the California Supreme Court requires the couple to live in different homes and keep their income separate in order to be considered legally separated. Under California law, community property status changes when a couple separates, meaning that each spouse keeps whatever they earn. If that couple later divorces, all the money they earned after separation is not considered community property during the divorce.
The California Supreme Court’s decision came as a result of the divorce case of Keith and Sheryl Davis. Although Sheryl Davis filed for divorce in 2008, listing the date of separation as June 2006, the couple had continued to live together under the same roof until July 2011.
How divorce affects 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
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 Sacramento estate planning lawyers 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 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!