DEFINITION of Common Law Property
Common law property is a system that most states use to determine ownership of property acquired during marriage. In contrast to the community property system, the common law property system states that property that one member of a married couple acquires belongs solely to that person unless the property is specifically put in the names of both spouses. This theme becomes important in wealth management and estate management following a divorce or death or a spouse.
BREAKING DOWN Common Law Property
For example, under the common law property system, if one partner purchases a boat, car, or other vehicle and puts only his name on the title, that vehicle belongs exclusively to him. If this partner lived in a state that recognized community property, however, the car would automatically become the property of both partners in the marriage. Only a few states, such as Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin recognize community property.
This distinction is important in wealth management. For high net worth individuals, a wealth manager might go to great lengths to determine the rightful ownership of certain assets in common or community property situations. Wealth managers also provide a range of additional services for clients, both high net worth and more traditional retail customers. These include creating a plan or policy for an individual, couple, or family that maintains and/or increase the client's wealth, based on their specific financial situation, goals and ability to handle risk.
Following the policy’s development, the manager meets regularly with clients to ensure that goals continue to be relevant, to go over and potentially rebalance clients’ financial portfolios, as well as to ascertain if additional services are needed, such as attorney, accountants, insurance agents, and bankers. Wealth managers could also be involved in the creation of wills, trusts, and overseeing inheritances of wealth from one generation to the next.
Common Law Property and Other Physical Assets
In addition to the example of vehicles mentioned above, other physical assets that could be divided, depending on common law property rules include: real estate (encompassing first and second homes, along with additional rental properties, land, and constructions such as docks and boat houses, not used for day-to-day living) and collectibles, such as art. Physical assets stand in contrast to intangible assets such as brand names, patents, trademarks, leases, computer programs, customer lists, franchise agreements, and more. Many intangible assets are associated with companies (and less so with individuals).