Community Property: What it Is, What States Are Affected, and How to Deal with It

Although just eight of the fifty United States are community property states, about one fourth of all Americans live in one of the community property states. These community property laws can affect ownership of personal property, divorce, or inheritances so it is important to understand just what community property laws are and how they work.

Unlike the common law rules followed in most other states, community property states consider the following to be joint property between two married individuals:

Any income received by either spouse during the marriage, meaning that all income is joint property of the couple no matter who earns what.

Any property, real or personal, acquired with employment or other income during the marriage. This includes vehicles, homes, furniture or appliances, and luxury items.

Any property, real or personal, obtained with employment income. Again, this includes anything bought during the marriage.

Any property formerly classed as separate property that becomes community property. An example of this would be if one spouse owned a home prior to marriage. In a community property state, the home would become joint property if the spouse who originally owned the house changed the deed to include the spouse.

Many business interests and pensions also come under community property states such as 401k plans.

Separate property, as defined by law, in a community property state includes

All property owned by the spouse prior to marriage

Any and all property obtained by a spouse after a legal separation is in effect

Any property received as a gift or inheritance during the marriage from a third party (as long as said property remains separate from community property, i.e. deeds, joint banking accounts, etc.

The states that govern under community property laws include Arizona, California, Idaho, Nevada, New Mexico, Texas, Louisiana, and Washington. While not technically a community property state, Wisconsin is considered to be one because of strong joint ownership laws that applied to married couples.

In the event of death or divorce, community property laws can be vital in determining who receives property. In any community property state, a surviving spouse is considered to own any property owned jointly or by the deceased spouse. For divorce division of property, most property will be divided and sold unless both parties reach an agreement regarding distribution of property. In non-community property states, laws limit the rights of any spouse to disinherit a spouse from property. Most states allow a surviving spouse to receive a minimum of one half or one third of property. However, in a community property state, it's wise to understand the laws because one spouse will become sole owner of all property owned during the marriage.

Community property laws apply not only to couples who live within one of the eight states considered community property states but to any marriage or divorce in which one spouse lives in a community property state or owns property in a community property state.

If in any doubt about how community property laws may apply to personal situations, it's best to consult a legal professional to fully understand marital property where community property laws apply.