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.
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