What Is Community Income and Community Property?

In a community property system, partners share equal rights to all assets and debts regardless of who brings in the money. Real estate owned by both spouses is considered community property. In a community property state, each spouse automatically acquires an undivided half interest in the marital community's income and assets upon entering a marriage. A married couple in a community property state must divide their joint income and assets into equal shares to file separate tax returns. Federal tax laws generally defer to state laws when determining whether a source of income is community income or whether a piece of property is community or separate property. In most cases, assets acquired during a marriage are considered community property rather than individual property.

During a marriage, both partners contribute equally to the household expenses and all income is considered community income. Your 50% share of your spouse's income this week is $500 if they earn $1,000. The law of community property states that you both contributed equally. Even in a state where the property is shared equally among spouses, there are situations in which one partner may hold onto some assets as their own. Separate property includes anything that either spouse owned before the marriage, acquired using their funds, or traded for. An agreement between spouses recognised by the state as valid can also convert community property to separate property. The term for this process is "transmutation."

Different jurisdictions have laws concerning the possibility of transformation, which may or may not be applicable in a given case. Gifts and inheritances left explicitly to one spouse, but not the other, are also usually treated as separate property—individuals' ability to earn money from their assets. For example, if you were the sole owner of a home before getting married and now rent it out, the money you make from the rental is your own.

Community Property and Estate Planning

Managing and disposing of property is crucial to many estate plans and budgets. Several significant life changes may affect a household's community property laws.

Change of Domicile

The transition is most straightforward when the people who created the community property estate relocate to a common-law state. When moving out of one of the states mentioned above, the community property estate ends because the household is no longer subject to community property law.

Death

When one spouse dies, the community property estate ends in those states. The spouse will typically be entitled to the deceased spouse's property. However, the disposition of property upon death is treated differently depending on whether or not the state is a community property state. In the state of Washington, for instance, a surviving spouse will receive the following:

All Of The Deceased's Share Of The Net Community Estate

In the case of the decedent's children or other surviving heirs, the surviving half of the net separate assets If there are no direct heirs but one or more parents survive the deceased, the parents receive three-fourths of the different net assets. In the absence of heirs or parents, all of the net individual assets.

Divorce

In the event of a divorce or legal separation, the community property estate is typically considered to be dissolved. Even if one or both partners have moved out of the marital residence (within a community property state) or filed for divorce, the marriage is still legally intact. Joint property estates are governed differently in California and Washington because of their geographical proximity.

Physical Separation

When a married couple in Washington or California lives apart to end their marriage, their community property estate is considered to have ended. The dissolution of a community property estate necessitates carefully examining all the issues involved. Each party's actions are used to determine whether or not there was a shared intent. When there's a dispute, the person who claims the community property estate ended usually has the burden of proof.

Do You Have to Use Community Property Rules?

When dividing money, married couples with at least one member living in a community property state should use those state's community property rules. However, there are situations where you may be able to ignore or use a modified version of community property rules. Take, as an illustration:

• If one spouse does not disclose their source(s) and amount(s) of income, the community property rules may be ignored, but this is subject to proof.
• Spouses who are physically separated for more than a year may petition the court for a modification of the community property rules.

Conclusion

Income and property acquired during a marriage are considered community property under the law. Typically, assets are owned equally by both partners, even if one earns more or contributes more to the household's net income. Only upon the decedent's death, the decedent's divorce, the decedent's departure from the community property state, or the decedent's physical separation from the surviving spouse is the community property estate typically dissolved.