Estate Planning Defined – What Is Community Property?

| November 3, 2010 | 0 Comments

In this post, I define community property, which is a term that, I have found, is not always clearly understood by those who use it.

First, community property can be either
real property (farm land, raw land, land improved with buildings, a condominium, a townhouse, a single family dwelling, etc.) or personal property (bank accounts, investment accounts, life insurance, furniture, artwork, paintings, partnership interests, etc.) that is owned by a married couple living in California (either a heterosexual couple or one of the more than 18,000 same sex married couples in California) or a couple who have registered with the California Secretary of State as domestic partners (Registered Domestic Partners (RDPs) may be either a same sex couple or a heterosexual couple).

Second, in general, community property is any real property that is located in California or any personal property—regardless of where such personal property is located—that is acquired by either member of the couple during the term of the couple’s marriage or registered domestic partnership, EXCEPT that community property does not include any real property or personal property that either member of the couple acquires from an inheritance or as a gift from a third person or specific property that is the subject of a prenuptial or post-nuptial agreement, if the spouses have entered into such an agreement. (Property that a member of the couple acquires by gift or inheritance is the separate property of that person.)

In addition, the ownership interest that each spouse or registered domestic partner has in the couple’s community property is (1) present (i.e., the ownership interest exists NOW and not at some point in the future); and (2) equal in value (or in percentage) to the ownership interest in the couple’s community property that is held by the other spouse or registered domestic partner.

Community Property Includes Employment Earnings of either member of the Couple, Items Acquired with such Earnings, and Appreciation in Value of Such Items. Important: Community property includes all of the employment earnings of either or both member(s) of the couple, including all pre-tax earnings that are deposited into the retirement plans owned by either or both member(s) of the couple. Community property includes all of the items purchased or acquired with such employment earnings. Finally, community property also includes all of the appreciation that accrues over time to the items that were purchased or acquired with such employment earnings.

Example #1: Husband and Wife live in California. During their marriage, Wife purchases shares of Google common stock using her employment earnings that she earned during her marriage and while living in California. The shares of Google stock become the community property of both Husband and Wife.

Example #2: Husband and Wife live in California. During their marriage, Husband’s mother dies. Husband inherits his mother’s home from her estate. The home is Husband’s separate property and Wife has no ownership interest in the home when Husband inherits it.

Example #3: Husband and Wife live in California. Prior to their marriage, Wife owned her own home. There was a mortgage on the home. After their marriage, Husband and Wife move into and live in Wife’s home. Wife did not add Husband’s name to the legal title of Wife’s home. Husband and Wife use their earnings to pay down the mortgage on Wife’s home. Under these facts, part of Wife’s home is owned solely by Wife as her separate property and part of Wife’s home is owned by Husband and Wife as their community property. How much of Wife’s home is the community property of Husband and Wife? The answer is complicated and depends on a number of factors, including but not limited to (1) the value of Wife’s home when Husband and Wife married, (2) the value of the mortgage that was paid down after Husband and Wife married, and (3) the appreciation that has accrued to the Wife’s home since Husband and Wife married.

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Finally, the character (or classification) of the real property or the personal property that is owned by either or both member(s) of a married couple or registered domestic partnership may be either
community property, separate property, quasi-community property, or some combination of community, separate, or quasi-community property. In future posts, I’ll define each of these other types or characters of property.

We hope this information has been helpful. Please leave a comment about this post if you have the time. Thank you. James B. Creighton, Esq., Creighton Law Offices

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