Community Property: Important Concepts

The basic rule of community property is simple: During a marriage, all property acquired by either spouse is owned in equal half shares by each spouse as community property, except for property received by one spouse as a gift or inheritance.

Anything that isn't community property is "separate property" - that is, property owned entirely by one spouse. For example, property owned before marriage usually remains separate property even after the marriage. Also, property can be given as separate property to one spouse by a will or gift.

In community property states, what you own typically consists of all of your separate property and one-half of the property owned as community property with your spouse. Together, this is the property you can leave in your will however you choose to. You do not have to leave your half interest in the community property to your spouse, although it is common to do so.

Community Property Defined

The following property is community property:

• All employment income received by either spouse during the course of the marriage. Generally, this refers only to the period when the parties are living together as husband and wife. From the time spouses permanently separate, newly acquired income and property are generally the separate property of the spouse receiving them.
• All property bought with employment income received by either spouse during the marriage (but not with income received after a permanent separation).
• All property which, despite originally being separate property, is transformed into community property under the laws of your state. This transformation can occur in several ways, including when one spouse gives it to the community (the couple)-for example changing the deed of a separately owned home to community property. More commonly, separate property simply gets so mixed together that it's no longer possible to tell it apart. Lawyers all this "commingling."

The one significant exception to these rules is that all community property states allow spouses to treat income earned after marriage as separate property if they sign a written agreement to do so and then actually keep it separate, as in separate bank accounts. Most couples don't do this, but it does sometimes happen, as with a prenuptial agreement.

Separate Property Defined

All of the following are separate property:

• Property owned by either spouse before marriage
• Property one spouse receives after marriage by gift or inheritance, and
• Property that the spouses agree, in a contract, to classify as separate.

These kinds of property remain separate property as long as they aren't mixed(commingled) with community property. As mentioned, if commingling occurs, separate property may turn into community property.

Community property states differ in how they classify certain types of property. One ofthe biggest differences is how the states treat income generated by separate property during a marriage. In California, Arizona, Nevada, New Mexico, and Washington, any income from separate property during a marriage is also separate property. In Texas, and Idaho, it is considered community property. (Wisconsin's statutes on this point are confusing; if it matters to you, see a Wisconsin lawyer.)