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. Personal Finance

    Which States Are Community Property States?

    There are nine community property states. Here's what 'community property' means when a couple divorces.
  2. Personal Finance

    State Laws Dictate Division Of Joint Property

    In breakup, divorce or death, community or common law will determine how property is divided.
  3. Investing

    Your Property Tax Assessment: What Does It Mean?

    The amount of a property tax bill is based on the property’s value, the exemptions it qualifies for, its use and the local property tax rate.
  4. Taxes

    Sell Your Rental Property For a Profit

    Being a landlord can be taxing, especially when you want to sell. Find out how to reduce your burden.
  5. Taxes

    This Is How Property Taxes Are Calculated

    Understanding how property taxes work will ensure that you won't be overcharged.
  6. Managing Wealth

    Investing In Foreclosures Not A Get-Rich-Quick Venture

    Investing in this kind of real estate takes capital, time and careful planning.
  7. Investing

    The Guide to Investing in REO Properties

    Real estate owned properties present a unique investment opportunity but there are some specific challenges to be aware of before diving in.
  8. Investing

    How Rental Property Depreciation Works

    It's a bit tricky, but a valuable tool to make your investment pay off.
  9. Financial Advisor

    How Does Depreciation Reduce My Tax Bill?

    How the depreciation tax rule can assist real estate investors.
  10. Investing

    Your Property Tax Assessment: What Does It Mean?

    Property taxes are a primary source of revenue for governments, and they’re a big expense for homeowners. They can vary widely depending on where you live.
Frequently Asked Questions
  1. Who determines interest rates?

    In countries using a centralized banking model, interest rates are determined by the central bank. In the first step of interest ...
  2. What's the Best Way to Contact Warren Buffett?

    Learn how to contact Warren Buffett and what kinds of contact is most likely to receive a response from him or from his company, ...
  3. What is the Financial Services Sector?

    A diverse group of companies, beyond banks and credit unions, comprises the financial services sector.
  4. Who are Whole Foods' (WFM) main competitors?

    Whole Foods' main competitors are Sprouts Farmers Markets and Trader Joe's. However, the recent acquisition by Amazon my ...
Trading Center