How is "Community Property" Defined Under California Law?

ESTATE PLANNING DEFINED How is "Community Property" Defined Under California Law? In this post, I define community property, which, I have found, is a term that is not always clearly understood by those who use it. Keep in mind that I am defining community property under the laws of the State of California, which is one of nine (9) states that have codified the concept of "community property" in their laws. The other states in which one can own community property include Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In some cases, there are differences between what is community property in California and what is, or may be, community property in Texas, for example. First, community property can be either real property (farm land, raw land, land improved with buildings, a condominium, a townhouse, a single family dwelling, etc.) or personal property (bank accounts, investment accounts, life insurance, furniture, artwork, paintings, partnership interests, etc.) that is owned by a married couple who are living in California (either a heterosexual couple or one of the more than 18,000 same sex married couples in California) or a couple who have registered with the California Secretary of State as domestic partners (Registered Domestic Partners (RDPs) may be either a same sex couple or a heterosexual couple). Second, in general, community property is any real property that is located in California or any personal property-regardless of where such personal property is located-that is acquired by either member of the couple during the term of the couple's marriage or registered domestic partnership, EXCEPT that community property does not include any real property or personal property that either member of the couple acquires from an inheritance or as a gift from a third person, or specific property that is the subject of a prenuptial or post-nuptial agreement, if the spouses have entered into such an agreement. (Property that a member of the couple acquires by gift or inheritance is that person's separate property.) In addition, the ownership interest that each spouse or registered domestic partner has in the couple's community property is (1) present (i.e., the ownership interest exists NOW and not at some point in the future); and (2) equal in value (or in percentage) to the ownership interest in the couple's community property that is held by the other spouse or registered domestic partner. Community Property Includes Employment Earnings of either member of the Couple, Items Acquired with such Earnings, and Appreciation in Value of Such Items. Important: Community property includes all of the employment earnings of either or both member(s) of the couple, including all pre-tax earnings that are deposited into the retirement plans owned by either or both member(s) of the couple. Community property includes all of the items purchased or acquired with such employment earnings. Finally, community property also includes all of the appreciation that accrues over time to the items that were purchased or acquired with such employment earnings. Example #1: Husband and Wife live in California. During their marriage, Wife purchases shares of Google common stock using her employment earnings that she earned during her marriage and while living in California. The shares of Google stock become the community property of both Husband and Wife, even if the Wife takes ownership of the stock in her name alone. Example #2: Husband and Wife live in California. During their marriage, Husband's mother dies. Husband inherits his mother's home from her estate. The home is Husband's separate property and Wife has no ownership interest in the home at the time the Husband inherits it. Example #3: Husband and Wife live in California. Prior to their marriage, Wife owned her own home. Wife obtained a mortgage on her home prior to their marriage. After their marriage, Husband and Wife move into and live in Wife's home. Wife did not add Husband's name to the legal title of Wife's home. Husband and Wife use their earnings to make the payments against the mortgage on Wife's home. Under these facts, part of Wife's home is owned solely by Wife as her separate property and part of Wife's home is owned by Husband and Wife as their community property. How much of Wife's home is the community property of Husband and Wife? The answer is complicated and depends on a number of factors, including but not limited to (1) the value of Wife's home when Husband and Wife got married, (2) the value of the mortgage that was paid down after Husband and Wife married and prior to a legal separation or divorce between Husband and Wife, and (3) the appreciation that has accrued to the Wife's home since Husband and Wife married and prior to a legal separation or divorce between Husband and Wife. Finally, the character (or classification) of the real property or the personal property that is owned by either or both member(s) of a married couple or registered domestic partnership may be either community property, separate property, quasi-community property, or some combination of community, separate, or quasi-community property. In future posts, I'll define each of these other types or characters of property. We hope this information has been helpful. Thank you. James B. Creighton, Esq., Creighton Law Offices, San Mateo, CA Continue reading "How is "Community Property" Defined Under California Law?"

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