The term "community property" often comes up in discussions about estate planning (and divorce). It is a form of property ownership derived from Spanish law—solely between husband and wife—recognized in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. The other states are "common law" states regarding their marital property ownership system. American common law originated in England.
Who should be concerned with community property?
The subject of community property deserves the attention of three groups of people: Spouses who now live in a community property jurisdiction; those who now live in a common law state, but who acquired money or property while living in a community property state previously; and those who now live in a community property state, but who acquired money or property while living in a common law state previously.
Specifics in law differ significantly from state to state, but the defining feature of community property is this: irrespective of the name(s) on title documents, ownership of (almost) all property—including income from wages and self-employment—acquired during marriage by either spouse is automatically split, so that each spouse owns one-half.
Since the two equal interests of the spouses in community property are separate, each spouse is free to dispose of his or her half of community property in a will. It does not automatically pass to the survivor, as it would if owned jointly, with right of survivorship.
Because state laws vary so much and these issues are complex, be aware that special attention needs to be given to the issue of community property if you are affected by it. If you are, it is important to see a lawyer for guidance in understanding the extent of each spouse's property rights before attempting to give it away by gift, in a will, or in trust.
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