Community property is the law in nine states:
ArizonaCaliforniaIdahoLouisianaNevadaNew MexicoTexasWashingtonWisconsin
In these states and territories, assets that enter the lives of a couple after they are married are considered community property. These assets include income, furniture, vehicles, or anything purchased during the marriage.
Example of Community Property
In a community property state, if you purchase a house during the marriage and put only one partner’s name on the deed, the other partner is still the legal co-owner.
Types of Community Property
Assets
Assets that each spouse owned before the marriage date are not included in community property. For example, if Salazar owned a home before he married Siobhan, she isn’t considered an equal owner of that property. However, property can transmute (“change”) into community property. For example, if a spouse is the sole owner of a bank account but uses the account to withdraw and deposit community money, the account is a community asset. However, the rules for transmutation can be nuanced and it’s not always easy to tell if property has transmuted.
Income
Income counts as well. For example, suppose Eva and Laia are getting a divorce. They are both employed and earn income, and they both share each other’s income. Therefore, it’s possible under community property rules that each would own half of the total income and wages after the date they were married.
Debts
Debts also fall under the umbrella of community property. Depending on state laws, debts are equally owed by both spouses, regardless of which one incurred the debts. For example, if Clyde’s husband Charles were to run up a $10,000 credit card bill and fail to make the payments, the lender could pursue the couple’s community property to pay for the debt.
Taxes
Community property laws affect federal income taxes, too. If spouses file separate income taxes, each is taxed on 50% of the total income, no matter which spouse earned it. For example, if Mary brought in $75,000, and John only brought in $25,000, and they filed separately, they would each pay federal taxes on $50,000 of income for the year.
Community Property vs. Common Law Property
Under common law, each spouse is a separate individual and their legal and property rights are separate. Forty-one states use common law. In these states, for example, each spouse is responsible for their own tax bill. In community-property states, spouses are seen as partners in a community. They each contribute with their labor to benefit their community, so they each get a 50% share of all community property.
Community Property and Divorce
When a couple divorces in a community property state, each spouse is generally entitled to half of their marital or community property. Likewise, each spouse would be responsible for an equal share of all marital debts. Divorce laws can vary somewhat among the community property states, so consult with an attorney who practices in your state if you want to know the state’s rules. For example, a prenuptial agreement can override community property law in California. If both spouses consent to a non-community-property arrangement in writing and their agreement meets all the rules for a qualified prenuptial, their property and debts would be divided according to the agreement, not community property law.
Community Property and End of Life
As with divorce, asset distribution following the death of a spouse in a community property state depends on state law. If the couple didn’t make an estate plan with a will, the intestacy laws of the state where they lived would govern who gets what. These laws tend to vary a great deal among community property states. For example, a surviving spouse would inherit all the community property in Texas if the couple had children together. But if the spouse who died had children that weren’t also the surviving spouse’s children, those children would receive their parent’s 50% share of the community property and the surviving spouse would receive the other 50%.
