Community property is a type of joint ownership of assets between married couples. With some variation by state, it means all assets purchased or acquired by a couple during their marriage are owned equally by them.
What Is Community Property?
Community property is the law in nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Married couples can elect to have some or all of their property treated as community property in Alaska, Tennessee, and South Dakota by stating so in a written contract, but this type of ownership is not mandatory as it is in the other states.
How Community Property Works
In states where community property is the law, assets of the couple are jointly owned, regardless of how the asset is titled.
In a community property state, if you purchase a house during the marriage and put only one partner's name on the deed, the other partner is still the legal co-owner.
Gifts and inheritances are an exception. If someone specifically gives something to just one spouse, that property is theirs alone, and if a spouse inherits an asset, it's theirs alone, regardless of whether they are married at the time.
Also excluded are assets that each spouse owned or acquired before the date of the marriage. If John owned a home before he married Mary, she isn't considered an equal owner of that property because its acquisition predated the marriage—unless it becomes transmuted into community property. That can occur if community money earned during the marriage is ever used to maintain the asset, such as to make repairs or to pay insurance premiums.
Types of Community Property
Let's look at other types of community property:
Earnings, Income, and Wages
In community property states, John would own half of Mary's earnings, income, and wages and vice versa.
Debts fall under the umbrella of community property, too. They're equally owed by both spouses, regardless of which one incurred the debts. If John runs up a $10,000 credit card bill in his own name and fails to make the payments, the lender can pursue Mary for the money, even to the extent of garnishing her wages.
Community Property and Divorce
When a couple divorces in a community property state, each spouse is generally entitled to half of their marital or community property. Likewise, each spouse would be responsible for an equal share of all marital debts.
But divorce laws can vary somewhat among the community property states, so consult with an attorney who practices in your state if you want to know the state's rules. For example, a prenuptial agreement can override community property law in California. If both spouses consent to a non-community-property arrangement in writing and their agreement meets all the rules for a qualified prenup, their property and debts would be divided according to the agreement, not community property law.
All other states, sometimes called equitable distribution states, divide marital property and debts in a way that seems equitable, or fair, to a judge or by an existing agreement between the spouses.
Community Property and Death
As with divorce, the distribution of assets following the death of one of the spouses in a community property state depends to some extent on the state. If the couple didn't make an estate plan, the intestacy laws of the state where they lived would govern who gets what. These laws tend to vary a great deal among community property states.
For example, a surviving spouse would inherit all the community property in Texas if the couple had children together. But if the spouse who died had children from a previous marriage, those children would receive their parent's 50% share of the community property. The surviving spouse would receive only their 50% share.
- Community property is a form of joint property ownership that is the law in nine states.
- Excluded are gifts and assets acquired before a marriage.
- Both income and debt are jointly owned in community property states.
- Prenuptial agreements can override community property law if explicitly specified.