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Estate Planning

COMMUNITY PROPERTY STATES VERSUS COMMON LAW PROPERTY STATES

Fall 2000, Volume 3/Number 1

11.1.2000
There are two different systems for classifying marital property in the United States: the common law property system and the community property system. Most states, including Connecticut and New York, utilize the common law property system. Under this system, property acquired by a married person during marriage is the property of that person separately, unless the person agrees with his or her spouse to hold the property jointly. By contrast, 10 states are community property states -- Arizona, California, Idaho, New Mexico, Louisiana, Washington, Nevada, Texas, Wisconsin, and Alaska. Generally speaking, under the community property system, property acquired by either spouse while married becomes community property. Property acquired before marriage, as well as property inherited or received as a gift during a marriage, is generally considered the separate property of the recipient spouse.
 
Whether property is classified as community property or as common law property affects rights of ownership, rights to income from property, rights and duties of management and control, rights to make lifetime gifts, property rights in the event of divorce, and rights to dispose of property at death.
 
Moving from a Common Law State to a Community Property State
Community property states have different systems for treating the property of spouses who have migrated from common law states. Usually, assets acquired in community property states are community property, and assets acquired in common law states are separate property. However, some community property states, such as California, have a system of quasi-community property, which converts into community property any property that would have been community property had it been acquired in that state. Other community property states, such as Texas, do not change the classification of property that was acquired while living elsewhere.
 
Whether or not a community property state reclassifies property acquired elsewhere may be of great significance, especially with respect to a spouse who does not work or otherwise have financial assets. Because property acquired by the working spouse is considered separate property in common law states, most common law states have statutes providing for an elective or forced share in a deceased spouse's estate to protect a non-working spouse from being involuntarily divested of all property acquired during a marriage. When a couple moves to a state like California, the property acquired by the working spouse becomes quasi-community property, and the non-working spouse is entitled to half of each asset of the deceased spouse's estate. This system protects the non-working spouse who moves from a common law state. In moving to a state like Texas, however, the classification of property acquired by the working spouse does not change, even though Texas does not have statutes to protect the non-working spouse from being divested of property acquired during the marriage. Thus, in such a case, if the working spouse died, the non-working spouse would have no statutory right to claim property acquired by the deceased spouse prior to the relocation and could be disinherited under the deceased spouse's will.
 
Other Differences Among Community Property States. Community property rules differ in other ways. For example, in some states, income from separate property is separate property, while in other states, income from separate property becomes community property. States with quasi-community property systems also disagree as to whether the non-working spouse is entitled to one-half of the value of the total quasi-community property or to one-half of each asset.
 
Moving from a Community Property State to a Common Law State.
Generally, common law states treat property acquired during marriage in a community property state as jointly-held property in which each spouse has an undivided one-half interest. However, to the extent the common law state also has an elective or forced share statutory right in a surviving spouse, that right usually will not extend to the undivided one-half interest deemed to be owned by the deceased spouse.
 
Given the significant differences between community property states and common law states, it is important to understand how a state's particular system will affect you before you move. It is also important to find out to what extent the state law system can be overridden by the provisions of a properly executed will or other testamentary disposition.
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