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Community Property

DEFINITION

Property acquired by a married couple during the course of the marriage belongs to both partners of the marriage.

EXPLANATION

The concept of community property was adopted from the Spanish Empire’s rule in the Americas. Community property is a form of ownership for personal and real property by a spouse or registered domestic partner. This form of property ownership grants each spouse equal rights to the subject property. Members of community property own half the property and have the right to transfer their portion to another individual through a will. Additionally, each spouse has the right to dispose of their portion of the property.

If the deceased party does not designate an heir apparent in a will, the property will automatically transfer fully to the surviving spouse. The heir apparent who inherits a deceased party’s portion of community property becomes a joint tenant with the surviving spouse. Because assets transfer automatically without the need for probate or wills, the property will be transferred probate-free without expenses.

Although community property is equally split between spouses and partners, each spouse can legally own additional property as an individual. If an individual owning community property comingles assets or money of community property with separate property, the status of one or both of the properties may change. Property purchased during a partner’s marriage is, however, typically considered community property. Property owned prior to marriage or the forming of a partnership will remain the possession of the party which held the property prior to marriage.

Property purchased after the marriage of partners can be divided as community, personal or other property type. Separate property can be acquired individually, either through purchase deriving from income of a separate property, money earned prior to marriage, or as a gift.

Property designated as community property can be altered to another form of ownership by a written agreement. If partners of a marriage do not designate the type of ownership, courts will typically label the property as community property. Because members of community property own an equal share of the property, any financial decisions must be approved by all parties. This includes approval for refinancing, cashing out, selling or leasing the property. All documents indicating change in ownership or alteration to current agreements must be signed and executed by both parties.

Right of Survivorship

Community property with a right of survivorship refers to the automatic transfer of a deceased spouse’s interest in community property to the other spouse. The right of survivorship is used in joint tenancy, tenancy in common, and community property. For example, if Mary and John own community property and John dies, John’s interest in the property will be automatically transferred to his wife, Mary.

Example

Daniel marries his longtime girlfriend Sarah. Prior to their marriage, Daniel purchased many properties as a real estate investor. Is Daniel required to make the property he purchased prior to marriage community property?

No. Daniel owned the property prior to the marriage, which means he has the legal right to keep assets before marriage as his own property. Sarah is not entitled to Daniel’s properties; however, Daniel cannot comingle assets between his own property and community property he owns with his wife, Sarah.

Historical Origins of Community Property

The change from a civil legal system in the origins of the United State’s to a common law system drastically affected the landscape. Landowners were granted new protections and individuals were protected by the courts. Such changes included following laws established by the legislature and using them to interpret a legal outcome in court. One of the main concepts the US adopted from the Spanish civil law system was the idea of community property. Community property is land held by a husband and wife for the purpose of protecting the land. Upon the death of one of the members of the community property, land gets transferred to their living spouse. Because life expectancy was significantly lower in the early days of U.S. legal codification, the concept of community property quickly gained great favor in the states.

History of Community Property

Prior to 1975, a husband in California had legal control of all community property. This meant that he could manage, alter, transfer, and/or sell community property without the consultation of his wife. Reforms passed on January 1, 1975 granted both spouses equal ownership of community property under the law.

Community property includes:

Real property

Income

Debt

Assets (i.e. pensions, business interests, 401Ks)

Community property is shared equally between spouses/partners if it is acquired or owned during the course of a marriage/domestic partnership.

For example, say a wife saves money from her job and invests in a business. It is considered community property because the funds used to purchase the business were required during the marriage. Therefore, her husband has equal rights to it.

The following are not considered community property:

Real property owned prior to a marriage/domestic partnership

Assets or real property acquired with separate funds that were not earned during a marriage/domestic partnership

Income earned during a legal separation

Money or assets gifted specifically to one spouse/partner

Money or assets transferred to one spouse/partner through a will

Rental income from a spouse/partner’s separate property

Damages granted from a personal injury case

If one spouse/partner possesses property or assets prior to a marriage/domestic partnership, it is not considered community property. However, if the spouse/partner co-mingles that property or assets with those shared with the other spouse/partner, it becomes community property.

Ownership rights allow both spouses/partners to manage aspects related to community property, including leasing, re-financing, purchasing, and/or selling.

In order to sell community property, both spouses/partners must sign the property deed. Property cannot be gifted with each partner’s sign off.

Debts incurred during a marriage/domestic partnership are considered community property, even if they were only incurred by one spouse/partner. Debt collectors may be able to seize other community property in order to satisfy those debts. Any community property earned by an indebted spouse/partner may also be at risk for debts incurred prior to the marriage/domestic partnership.

When a couple files for divorce/legal separation, community property is divided equally amongst spouses/partners. If one of the spouses/partners contributed separate money and/or assets, that spouse/partner is entitled to take it back without it being divided.

Should one spouse/partner die without a will, property title will automatically transfer to the surviving spouse/partner.

Types of Partnership Property Ownership

There are three types of ownership whereby two or more individuals hold stake in a property:

Joint Tenancy

Tenancy in Common

Community Property

Property deeds typically indicate the type of tenancy or partnership held between co-owners. If co-owners do not specify that a tenancy is a joint tenancy, a partnership, or a community property, a tenancy in common is automatically created.

Legal Cases and Outcomes Relating to Community Property

Case Review: Marriage of Rico (1992)

The case, Marriage of Rico (1992) 10 Cal.4th 706., involved a dispute over whether a divorcing couple had equal interest in community property.

An unmarried couple (Rico) purchased a home together. The husband contributed over $36,000, while the wife contributed $1,500. One year later, the couple married and refinanced their home as tenants in common. Eight years later, the couple divorced. The wife brought legal action against the husband, claiming that she was entitled to half the fair market value of the property.

The Superior Court ruled that while the couple’s arrangement had become a tenancy in common — which assumes equal ownership between tenants — the husband had a separate, unequal interest in the property due to his larger contribution prior to the marriage. The court used the original capital investment, including the down payment, mortgage payments, taxes, and cost of repairs, as the measure of reimbursement. The wife appealed. The first ruling was upheld.

Case Review: Marriage of Branco (1996)

The case, Marriage of Branco (1996) 47 Cal.4th 1621., involved a dispute over community property.

A married couple (Branco) decided to divorce. During the marriage, the husband had contributed money towards the mortgage payments of a home that the wife had owned from a previous marriage. In doing so, he reduced the wife’s loan principal. The husband brought legal action against the wife so that the money that he had contributed to her mortgage was deducted from the portion of community property to which she was entitled.

The Superior Court argued that the husband was entitled to interest in the property if he had contributed towards it. Therefore, it ruled in favor of the husband.

Case Review: In re: Marriage of Stitt (1983)

The case, In re Marriage of Stitt (1983) 147 Cal.App.3d 579., involved a dispute regarding community property.

A couple (Stitt) got married. After the wedding, the wife purchased a property. She alone held title to that property and had a mortgage in her name. However, mortgage payments were paid out of a joint account. Soon after, the wife deeded the property to her husband and herself as joint tenants. (Only her name remained on the property title, however.) Years later, the wife filed for divorce. She claimed she had the right to take the property in the divorce, as only her name was on the property title. The husband sued.

The Superior Court argued that while the property title did not indicate that the husband was a co-owner, the property had been purchased during the marriage and was therefore, community property. The court granted the husband interest to the property.

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