CFP

By Investopedia AAA

Property Titling And Transfer - Community Property Vs. Non-Community Property

Community Property Vs. Non-Community Property
In the United States there are two different types of marital property laws: community property and common law property. The nine states in the U.S. that recognize community property law are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. All other states recognize a common law system.

In community property states, spouses share ownership of most property. The basic rule of community property is: during a marriage, all property earned or acquired by either spouse during that marriage is owned 50% by each spouse – except property received through a gift or an inheritance which was received as a "separate property." In community property states, property owned by one spouse before a marriage remains separate property, even after marriage only if it's kept separate.

Example: Levi Smith owned a home for five years before marrying Emily. He then signed a new deed for a house, listing "Levi and Emily Smith" as community property owners. Levi has given one-half ownership of the house to Emily.

A common mistake of transformation of separate property is when it gets commingled with community property and it's no longer possible to tell the difference between the two.

Example: When she got married, Ginger had a bank account with $40,000 in it, her separate property. During the 25 year marriage, she maintained this account adding money her husband earned and made no withdrawals. The original $40,000 has long since been commingled with community property funds and is no longer considered separate property.

In contrast, common law states that property acquired by one spouse belongs 100% to that spouse unless the property is specifically put in the names of both spouses.

Another simple example to distinguish the two: under the common law property system, if a married man purchases a motorcycle and puts only his name on the title, that motorcycle belongs solely to him. If the man lived in a community property state, however, the motorcycle would automatically become the property of both the man and his wife.

The main advantage to community property is the surviving spouse gets a full step-up in basis in the entire property if at least one-half of the whole property is includible in the deceased spouse's gross estate.

Sole Ownership
Related Articles
  1. Several things factor into the salary of a financial advisor. Here's a look.
    Investing Basics

    How Much Does A Financial Advisor Earn?

  2. With a long list of risks, losses associated with foreign exchange trading may be greater than initially expected. Here are the top 5 forex risks to avoid.
    Economics

    Top 5 Forex Risks Traders Should Consider

  3. ISAs are financial instruments that allow students to raise funds to pay for their degrees by selling shares in their future earnings.
    Investing Basics

    Funding Higher Education With An ISA

  4. Top Ways to protect your purchases from credit card hackers or security breaches.
    Credit & Loans

    7 Ways To Protect Against Credit Card ...

  5. The Internal Revenue Service's new 2015 contribution limits for tax-deferred savings plans are higher; here's what you and your clients should know.
    Investing Basics

    New 2015 Contribution Limits: Advisors ...

Trading Center