Community property laws have a dramatic impact on the rights of surviving spouses. Presently nine, mostly western states, have a community property system in place. Those community property states are Arizona, California, Idaho, Nevada, New Mexico, Texas, Louisiana, Washington, and Wisconsin (sort of).
What is Community Property?
Community property is everything a husband and wife acquire while married. Most community property states will classify the following as community property:
1. Any income earned by either spouse during the marriage.
2. Any property acquired with income earned during the marriage. This includes real property as well as personal property.
3. Any debts acquired during the marriage are part of the community property system.
What is Separate Property in a Community Property State?
Separate property in a community property state is everything that is not community property. This would include the following:
1. Property owned by each spouse prior to marriage.
2. Property obtained by each spouse after a legal separation.
3. Property received as a gift or inheritance during the marriage. If the inherited property is ever jointly titled with the other spouse, the property then becomes community property.
4. Pre-marriage debts remain separate property.
Can Separate Property Become Community Property?
Yes, separate property can become community property. The most common way would be to add the other spouse’s name to the title of the property, whether a bank account or piece of real estate. For example, if one spouse inherits a house during the marriage from a parent and adds the other spouse’s name to the deed, the property would then be considered community property.
What Happens to Community Property Upon the Death of the First Spouse?
In a community property state, upon the death of the first spouse, both the deceased spouse and the living spouse are each treated as owning one-half of the community property. Once the community property has been properly allocated, the estate plan of the deceased spouse can then be put into effect, but only with respect to the one-half of the community property treated as being owned by the deceased spouse.
Most community property states do not have separate spousal elections, such as elective share. Dividing up the community property at death is considered, perhaps, easier, or perhaps more fair.
What Happens to Community Property in a Non-Community Property State?
Most common law states (the opposite of a community property state) will respect the community property rules with respect to community property. So, if a married couple with community property moves from a community property state to a non-community property state, the community property rules will apply as much as possible to the community property owned by the married couple.
Many states have enacted a version of the Uniform Disposition of Community Property Rights at Death Act, which sets forth the framework for a common law state to recognize community property owned by the Decedent. Particular care must be exercised in perfecting community property rights in a common law state – especially because of the dearth of decisional law on the topic. See the 2019 case of Johnson v. Townsend for an example of a procedural mistake costing a surviving spouse her rights to community property acquired while the married couple lived in a community property state.