Some states have community property laws related to dividing assets during divorce. Learn what it means for you and your spouse.
What is Community Property?
Community Property is property acquired by spouses or registered domestic partners during the duration of their marriage or subsequent to registration. It includes: 1) All earnings during marriage of the wife, 2) all earnings during marriage of the husband, 3) all property acquired with earnings during marriage, and 4) any property acquired with "community funds."
Community Property is not property of a husband or wife acquired by gift, bequest, devise, or descent. (If the gift is "to the community," it is community property.)
Likewise, it is not property brought from a separate property state (see below). For example, if husband and wife move from Oregon (a separate property state) to Washington (a community property state), all of the property earned in Oregon by the wife is her separate property and all the property earned by the husband is his separate property, even after the move (assuming the husband has not made a gift of his property to his wife, and vice versa).
What is Separate Property?
Any property you came into a marriage with is your separate property. Likewise, gift and inheritance, as well as any rents or profits that come from them, is separate property (unless it was a gift to the couple, as a community). For example, if wife Liz inherits $5000 from her father's estate, ten years after she is married, that $5000 is her separate property. If Liz inherits a farm and rents the use of it, any profits from that farm are her separate property. If Liz's father gives a Christmas gift of $5,000, with a card that says "To Bob and Liz, for your down payment," this would be community property, because it was given to the couple, as a community.
Important Note: Whether it is community or separate property is not determined by the name or names on the title(s).
Does my property that I came into the marriage with turn into community property, or does it stay separate property?
Property acquired before marriage is separate property and there is a presumption that you intend to keep it separate.
But it can "lose" the separate property status, if: 1) Partners or spouses mix their separate funds so completely with community funds that they can no longer be distinguished as separate; or 2) both spouses or partners express a clear intention to have all separate property made community property. A Community Property Agreement is often used to do this.
Important Note: It is not sufficiently separate if a wife has a receipt for $1000 of her separate property that she deposits into a community bank account. This would be viewed by the court to be "commingled" and untraceable. To protect the separate property status, keep it in a separate, unshared bank account.
What can we do and not do with our community property?
Either spouse may manage and control the community property as if it was his separate property, except that a few things require a signature or some form of ratification from the other spouse. He cannot: 1) Devise or bequeath more than one half of the community property by will; 2) Give away community property without the express or implied consent of the other spouse; 3) Sell, convey, encumber, or purchase real property that is community (land, real estate); 4) Make a security interest other than a "purchase money security interest" without the other spouse joining in the execution of the agreement; 5) Sell community household goods, furnishings, appliances, or mobile homes without the other spouse joining in the agreement; or 6) do the same types of transfers of assets of a business, without consent of the other spouse, if both spouses participate in the business's management.
What does "community property state" and "separate property state" mean?
There are nine community property states in the United States, Washington being one of them. These states characterize the property earned during marriage as owned by the community (the married couple) equally, regardless of who earned it or how much each person in the community earned. In Washington, Registered Domestic Partners' property is characterized as community after registration.
Separate Property States make up the remaining states in the Union and they characterize property earned by a wife or husband as her or his individual separate property. If spouses move from a separate property state, all property acquired in that state and all property acquired with that property is the separate property of the the spouse who earned it.
There are special rules that apply at the death of a spouse, to assure an equitable result. If you and your spouse are concerned about the characterization of your property, you should consult an attorney.
What is a Community Property Agreement?
It is a binding contract between spouses or domestic registered partners.
It is also used as a "will substitute," meaning that it can be used to distribute your property at death and avoid probate.
A typical Community Property Agreement (CPA) is the three-prong CPA. A three-prong CPA does three key things: 1) It turns all property previously owned separately to community, 2) makes sure all property acquired in the future be community, regardless of where it came from (whether a separate or community source), and 3) transfers all property to the surviving spouse upon the death of the other spouse.
Important Note: There may be unwanted tax consequences and other complications with making a CPA. Before making a binding contract like a Community Property Agreement, consult an attorney.
For More on Community Property Agreements, see Washington's Community Property Agreements Explained.