Spouses and domestic partners must consider California Community Property law because these laws impose limitations on the transfer of marital property or domestic partnership property when making a distribution of assets in their estate plan. While many people associate “community property” with divorce or dissolution of a domestic partnership, community property also plays an important role in estate planning.
What is community property in California?
Community property is all property acquired by a California resident during marriage or the domestic partnership that is not the separate property of either spouse or domestic partner.
What is separate property in California?
Separate property is all property owned before marriage or the registering of the domestic partners and all property acquired during the marriage or domestic partnership that is acquired by one spouse or partner by way of gift or inheritance.
What states are community property states?
The community property states are California, Arizona, Louisiana, Nevada, New Mexico, Texas, Washington, Idaho and Wisconsin. Alaska has an optional community property system.
Can a spouse or domestic partner alter the characterization of property during the marriage or domestic partnership?
A spouse or domestic partner can change the characterization of property during the marriage or partnership from community to separate property, separate to community property or the separate of one spouse or domestic partner to separate of another. This is called “transmutation.” A transmutation of real or personal property is only valid if it is made in writing by an express declaration that is consented to or accepted by the spouse or partner whose interest is unfavorably affected. The requirement of a written instrument only applies to transmutations that occurred after 1984.
Does community property include real and personal property?
Community property includes both real and personal property. Community property law applies to the personal residence of the spouses or partners as well as to the Picasso painting hanging in living room.
Is a real property (a house) purchased before marriage or domestic partnership community property?
A home purchased before marriage or the domestic partnership will most likely be considered the separate property of the spouse or partner that purchased the home. However, the home may be considered partial community property if the mortgage payments, taxes, maintenance, etc., were made with community property earnings, like the wages earned by the spouse or partner that came along after the home was purchased.
Is a business owned prior to marriage or domestic partnership but operated during the marriage or partnership community property?
A business brought into the marriage or partnership before the marriage or registration and then operated after, will usually be considered both community and separate property. Since the business was brought into the marriage it starts out as separate property, but marital or partnership efforts will likely be expended on it, thus creating a portion of it that is community property. There are arithmetic formulas that help determine what percentage of the business is community property and what percentage is separate property. An experienced estate planning attorney can help you with this.
How does community and separate property relate to estate planning?
Generally speaking, each spouse or partner may give away 50% of the couple’s community property and 100% of their separate property (they may not give away any of the other spouse’s separate property).
Community property considerations are an important part of anyone’s estate plan because a person cannot give away property they do not own. One spouse or partner may not give away the entire primary residence if the other spouse or partner objects. Thus, that spouse or partner could only give away 50% of the residence to the beneficiary of their choice. However, because separate property is exclusively owned by one spouse or partner, that spouse or partner may give away that entire separate property asset regardless of the objections of other spouse or partner.
Most couples usually leave their entire estate to the surviving spouse or partner and then to their children. The situations in which community property plays a large part in estate planning often involves blended families. Since a blended family may have children from prior marriages or partnerships, it is often the case that a spouse or partner would not want to leave anything to a non-biological child. As a result, spouses or partners need to determine each asset’s community or separate property status in order to properly distribute those assets through their estate plan – especially when children from a prior marriage or partnership are involved. An experienced estate planning attorney can help.