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


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RELATED TERMS
  1. Common Law Property

    A system used by most states to determine ownership of property ...
  2. Community Property

    A U.S. state-level legal distinction of a married individual's ...
  3. Community Income

    Income earned by taxpayers who live in community property states. ...
  4. Marital Property

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  5. Property Management

    The administration of residential, commercial and/or industrial ...
  6. IRS Publication 555

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