Hers/Mine/Ours - Community Property and Why It Matters

Hers/Mine/Ours - Community Property and Why It Matters

Most clients come into my office and already know that Washington is a community property state but they don’t know exactly what that means.

We live in one of nine community property states, which includes Arizona, California, Idaho, Louisiana, Nevada, New Mexico, and Texas. However, each of these states has a different set of laws related to community property. So, what might be true in Washington may not be true in any of the other community property states.

If you’re a history buff, community property is a very interesting topic. Washington State implemented community property laws prior to its statehood but there is very little legislative history or support for why it was adopted. There is speculation that Washington residents wanted to attract women to the Washington Territory and that a community property system, like California’s, would help get woman up north. In particular, the men of the Washington Territory were looking for strong-minded and adventurous women who could rough it with the loggers and outdoorsmen of the Pacific Northwest. The men of the Washington Territory knew they would more easily attract these types of women if they presented them with a more equitable legal right to assets acquired during marriage. It is presumed, though not confirmed, that the legislature finally caught on and adopted the community property system to, essentially, help men get wives.

By definition, community property is all property acquired by either spouse during a marriage.[1] The exception to this rule is that gifts or inheritances made to one spouse is considered that spouse’s separate property. However, if any separate property (property owned by a spouse prior to marriage or gifts/inheritances during marriage) is so commingled with community property, the lines are blurred and it may be considered community property, regardless of its original characterization.

The reason it matters in the estate planning context is because a spouse can only give away one-half of his community property when he dies. Conversely, he can give away all of his separate property. So, the characterization of property as community or separate becomes very important upon death, particularly if there are children from a previous marriage.

A will cannot characterize property; it directs where property goes when someone dies. If there are questions about the character of property or the desire to define the character of property, it is prudent to enter into a property agreement, like a prenuptial or postnuptial agreement, wherein the parties agree what is community and what is separate. Oppositely, you can sign a community property agreement, wherein you agree that everything you have (including assets acquired before marriage) and everything you may own in the future is community property and distributable to your spouse when you die. This is a great way to avoid probate (and drama) upon the death of a first spouse.

Now that we have plenty of women up here, I like to think we have held on to community property laws so tightly to keep the same strong-minded, adventurous women in the state!

 


[1] To note, community property laws also apply to state-registered domestic partnerships, so any time “spouse” is mentioned here, it could also be a reference to a “state-registered domestic partnership.”


Published 01/08/2018.