What is community property?
You have seen us refer to community property in our prior post so we thought today we would explain what community property is. Community property is a marital property regime that originated in the civil law jurisdictions and is now also found in some common law jurisdictions. There are two different laws that decide property ownership in case of death or divorce. They are called community property and customary law. Common law is also referred to as separate property.
Community property signifies that anything acquired throughout the marriage belongs equally for both couple. In the event a couple decides to split up and go different ways, they will have to split their assets that they earned while they were married equally. That means 50:50.
The nine states that following community property law are Arizona, Nevada, California, Idaho, Washington, Louisiana, Wisconsin, New Mexico, Wisconsin and Texas. Many of these states agree that everything earned through the marriage ought is to be divided equally during the time of the divorce.
Unless an estate plan is clearly prepared and notarized then those states under community property will apply and the estate will be divided equally. So that means if you as a couple want to divide your property differently at the time of divorce then you need to mutually agree which property will be considered separate property and which will not be.
States who don’t follow community property laws keep all assets separated between the wife and husband. If a divorce occurs, the wife and husband keep exactly what is in their own individual name, including debt. Sometimes this might workout better if a person is the only real bread earner in the family.
For investors that intend to or have through the years accumulated huge amounts of investment properties and are now living in a situation that falls underneath the listing of community property states, it might be a good idea to file your taxes outside of your spouses to avoid claims that your separate property should be treated as community property.