Community and Separate Property Explained

Community property is property that is jointly owned by a married couple. It doesn't exist until you get married. And it ceases to exist when your marriage ends.

Determining Community Property

Any effort you put into anything while married that results in a monetary value is considered community property, i.e., property that is shared or owned equally by both you and your spouse. The idea is that the two of you are a team and contributing equally to the bottom line, no matter who is primarily or solely earning money or building wealth.

Whatever you do with those earnings later is also community property. It can go into a retirement account, a property, or a business. As long as the asset can be traced back to community funds or efforts, it's community property.

What is Separate Property?

Separate property includes whatever you owned before you got married, the increase in value of this property after marriage, and specific property you receive during marriage, like an inheritance.

An inheritance is a gift, meaning it doesn't come from any work or effort. Since community property is based on a shared effort during marriage, an inheritance doesn't meet this condition. It's separate property.

Separate property is all yours. Your spouse has no right to it.

Simple Concepts But Big Dollars

In a divorce, couples fight over whether something should be community or separate property because it makes a big difference in what each receives.

Community property is split fifty-fifty in divorce and at the death of a spouse, while each spouse gets to keep 100% of his or her separate property.

Wrong Assumptions

You can't prevent something from being community property by putting it in a separate account or in your name only. It's still community property. All that matters is whether it was earned during marriage.

But be careful. If you put separate and community property in the same account or use both to purchase something, you need to keep detailed records. You have the burden of proving something is your separate property. If you can't, it's all community property.

How To Handle Disputes

There are procedures for figuring out how much of a house, a business, an investment, a retirement account, or other asset is community or separate property.

Resolving these disputes is costly in time and legal fees. Records may or may not exist. Experts are often necessary. But it may be worth it because of the value of winning.

What Can You Do?

If you understand how this system works, you can make good decisions and keep good records, so you won't be blindsided later.

You can change the property rules for your marriage with a prenuptial agreement to limit or eliminate what will be considered community property.

Money and wealth are pretty important to most people. Knowing how that plays out in marriage is useful knowledge.