Dear fellow Californians, we live in one of the nine community property states*, which means that most property acquired during a marriage is considered community property. As a community property state, the California legal system assumes most money and property acquired during a marriage to be jointly owned. This includes wages, salary, self-employment income, and real property such as houses and cars. Since the property is considered jointly owned, it is divided in the event of divorce, annulment or death.
Community property systems are usually justified by the idea that joint ownership recognizes the theoretically equal contributions of both spouses to the creation and operation of the family unit, and therefore they should share the property acquired during that marriage. There are reasons, however, people may wish to keep some property separate. If you have property from the list below, let your attorney know so you can determine the best way to treat this property in your estate.
Property Owned Before Marriage
It is not uncommon for people to enter marriage with some property. This property can remain separate, but if it is commingled with other marriage assets the ability to keep it separate may be lost. For example, if general marital assets are used to pay the mortgage on a piece of property owned by one spouse, some or all of the property may be considered community property by the state.
Gifts or Inheritance:
When a spouse is given property or receives it as an inheritance, and that property is never commingled with marital property, it may qualify as separate. Similar to the example above, however, if that separate property is combined with or partially funded by marital property, the ability to keep this property separate may be lost.
Property Acquired in One Name
One spouse acquires property during the marriage in her or his name only and never uses it to benefit the other spouse or the overall marriage.
Separate Property Agreement
Property is agreed to in writing, meeting the state standard for mutual agreement, by both spouses that the property is separate and the possession of one person.
Personal Injury Awards
Awards for personal injury may fall into community or separate property treatment. Money awarded for lost earnings can be considered marital property, whereas money awarded for pain and suffering can be considered separate property.
Pension, 401K Plans
Given the duration during which retirement accounts are accumulated, they are treated differently from other property types. Rather than splitting the assets, it is divided based on the length of participation in the pension and the length of marriage. So, if an individual participated in a pension for 30 years and was married for 15 of those years, 50 percent of that income is community income.
What defines Community and Separate Property differs by state?
Knowing the laws of your state can be helpful before, during and after your marriage. These are just the basics of what can be a very complex set of rules. Be sure to work with a qualified professional if you have any questions about what rules apply in your situation.
*What states are community property states? They are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.