Property law is regulated by the state and is the basis for income taxation by the Federal government. Most states follow what is known as common law. In common law, property is solely owned by the person whose name is on the title unless it has been transferred or shared according to a contract. If assets must be divided, they are divided in proportion to what that spouse put into the marriage or other considerations.
In states with community property law, property acquired after marriage belongs to both spouses equally, regardless of whose name is on the title. Income from community property is community income as is income from services provided by you or your spouse/partner. The proportion of income from an individual within the marriage or partnership doesn’t matter; the income is treated as being equal for both.
As of this date, the states with community property laws include:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
In Alaska, a couple can request community property treatment by contract.
In community property states the law applies to any property that you, your spouse, registered domestic partner (California), or same-sex spouse (Washington) or both acquire during the course of the marriage or partnership while you are domiciled within that state. It can also include property that you and your spouse/partner agree to convert to community property.
It does not apply to property you or your spouse/partner owned separately before marriage, acquired while domiciled in a common law state, gifts and inheritances (mentioned earlier), or that acquired with separate funds (funds not considered community such as revenue from a business).
If this is beginning to sound complicated, it is. And it becomes more so depending on where you live and acquire the property during your marriage or partnership. For instance, property acquired in a community property state becomes separate property if you move to a common law state. Of course, there is an exception to this: real estate. Since real estate cannot move from one state to another, it will always be treated as community property in those states listed above.
There is a way around community property law and even common law as a matter of fact. If the partners/spouses sign prenuptial or postnuptial agreements and/or provide an estate plan, those plans and agreements can supersede community property law.
Same sex marriages and partnerships have an added layer of complexity because they are not recognized by the Federal government, which treats all property as belonging to an individual in these cases. Other problems occur when one state, even one allowing same-sex marriage, does not recognize a same-sex marriage performed in another state that also allows it. In this case, preparing a legal document delineating property rights is an essential tool in protecting yourself, your spouse, and your family.
If you have an issue or question about community property, your best course of action is to consult a lawyer who specializes in it. This becomes crucial during this time of change in what is considered a marriage is in flux and not treated the same from state to state.
