In a community property state, each spouse owns one-half of the community property and all of his or her separate property. Community property includes: wages earned and property acquired during the marriage, except property acquired as a gift or inheritance, and separate property converted to community property pursuant to a written agreement between the spouses. Debts incurred during the marriage are also considered community property.
In community property states, separate property of a spouse includes: property owned by the spouse prior to the marriage; property received by the spouse via a gift or inheritance during the marriage, provided such property is kept separate from community property; and personal injury damage awards or settlements for injuries sustained during the marriage, except lost wages. Separate property converted into another type of property or used to purchase other property remains separate property provided it is titled separately. Debts of a spouse incurred prior to the marriage remain separate property. Whether property is treated as community property or separate property is determined by state law and varies from state to state. See our list of state laws.Also, whether income earned from separate property during the marriage, such as rents, interest, and dividends, is considered community property or separate property varies by state. Some of the community property states treat income from separate property as community property, while other community property states treat such income as separate property.When the first spouse dies in a community property state, one-half of community property is part of the deceased spouse’s estate and the remaining one-half of community property continues to be owned by the surviving spouse. In a community property state, a husband or wife can make a will leaving all his separate property and his one-half share of community property to anyone other than the surviving spouse. Therefore, while one spouse cannot prevent another spouse from inheriting one-half of the marital property or community property, one spouse can generally disinherit the other spouse from his separate property and one-half share of community property. However, some community property states allow a surviving spouse to receive a minimum statutory share of the deceased spouse’s estate. If you are attempting to disinherit a spouse, consult an estate planning attorney for information about your spouse’s rights under state law.
Prenuptial Agreements and Inheritances
People often enter into prenuptial agreements that provide no community property rights shall arise during the marriage, including from income or wages earned by the parties. If you do not want your spouse to have community property rights in your wages, income, or property earned or acquired during your marriage, signing a prenuptial or premarital agreement may be something you should consider.If you are expecting to receive a large inheritance or gift, or if you will be entering the marriage with more wealth than your future spouse, a prenuptial agreement is also a good way to clarify the agreement of both parties regarding how inheritances, gifts, and existing assets will be distributed in the event of divorce or upon death.If you do not have a prenuptial agreement and live in a community property state, your spouse may take more of your property upon your death than you want, possibly to the exclusion of your children, parents, siblings, or other heirs. If you are concerned about what your
legal heirs will inherit, you may be able to negotiate terms in a prenuptial agreement in which your future spouse waives certain rights to inherit property that he or she could otherwise claim upon your death.While a prenuptial agreement can provide many benefits, it must be properly executed to prevent your spouse from trying to invalidate it later. If your future spouse is not given adequate notice of the prenuptial agreement and an opportunity to consult his or her own lawyer, your spouse may still try to claim a statutory share or spousal share of your property after you die. There may be additional requirements in your state to make the prenuptial agreement enforceable. Each state has its own requirements to make a prenuptial agreement valid. Before executing a prenuptial agreement, consult an attorney licensed in your state.
List of Community Property States
The following is a list of community property states in the United States: Arizona California Idaho Louisiana Nevada New Mexico Texas Washington WisconsinNote: In Alaska, spouses may agree in writing to have property acquired during the marriage treated as community property. The option to have certain property treated as community property may also be available in a few other states, such as Tennessee.
401k Accounts and Community Property
In a community property state, contributions by an employee, referred to as the participant, to a pension plan, 401k or other qualified plan prior to the marriage are considered separate property, whereas contributions to a qualified plan during the marriage are considered community property. A participant in an employer-sponsored retirement plan cannot remove his spouse as the primary beneficiary of the plan without the spouse’s written consent. See 401ks and Your Estate Plan.
When a spouse is deemed to have a community property interest in a participant’s pension plan or 401k, that community property interest is based upon state law. However, private employee benefit plans are usually covered by a federal law, the Employee Retirement Income Security Act of 1974, called ERISA. In determining the rights of a nonparticipant spouse to pass his community property interest in an employee benefit plan to a beneficiary of his will or living trust, applicable federal law must also be considered.On June 2, 1997, the U. S. Supreme Court issued a very important decision in Boggs v. Boggs holding that ERISA preempts state laws on community property and therefore, a nonparticipant spouse may not transfer a community property interest in undistributed pension plan benefits by a testamentary instrument. The Supreme Court’s decision in Boggs applies to all community property states in the U.S.The Supreme Court’s decision in Boggs has important ramifications for a married couple making an estate plan. Under Boggs, if you have a pension plan or 401k plan that is community property and your spouse predeceases you, your spouse’s estate does not receive one-half of the undistributed amount of the pension plan or 401k plan due to ERISA. Instead, that one-half community property share in the pension or 401k passes to the surviving spouse. This can be a problem if the nonparticipant spouse wants to protect her children by bequeathing her community property interest to her children if she should predecease her husband. Also, if the couple is concerned with estate taxes and the pension or 401k is substantial, the participant spouse’s estate may be larger, and thus subject to more estate tax, than it would be in the absence of Boggs.Unlike pension plans and 401k accounts, individual retirement accounts or IRA’s are not subject to ERISA. If you have an IRA that is community property and your spouse predeceases you, your spouse’s one-half interest in your IRA becomes part of your spouse’s estate. If you are a participant in a 401k, have attained age 59 ˝ or terminated from the employer where you earned the 401k amounts, and would like your spouse to have the ability to bequeath his or her community property interest as part of the spouse’s estate, you can rollover the 401k balance into an IRA. Rolling the 401k balance into an IRA avoids the ERISA preemption of state community property laws. See also IRA's and Your Estate Plan. Note, this article is not intended to address SIMPLE IRA's and the rules applicable to them.
When examining the role retirement benefits play in your estate plan, it is important to be aware that certain federal benefits, such as Social Security benefits and federal pension plans, are not community property and remain separate property of the spouse that earned such benefits. These types of retirement benefits are governed by federal law.Consult an attorney regarding estate taxes, estate planning provisions for the surviving spouse or partner, and any inheritances you wish to leave to your heirs. The laws regarding retirement plan benefits are complicated and become more so if you live in a community property state.
Community Property With Survivorship
For information on taking title to property as community property with right of survivorship or CPWROS, see title to property.
How Your Estate Plan is Affected If You Move to a Community Property State
If you are married and move to a community property state, have your estate plan reviewed by an estate planning attorney in your new state. You and your spouse may need to make significant changes to your estate planning documents to ensure your intended beneficiaries receive the bequests you wish them to receive.This article was updated on March 9, 2019.
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