Community property law is applicable primarily in the U.S., and only in those states termed “community property” states. There are nine states within the U.S. that use the community property system to divide marital assets. The nine states includes: Arizona, Texas, California, Idaho, Louisiana, Nevada, New Mexico, Washington and Wisconsin. In Alaska, if both parties agree to make the property community property through a community property agreement or trust, then the property is made community property. Therefore, Alaska is an opt-in community property state.
Quasi-community property is recognized by some community property states. Quasi-community property is property located outside of a community property state which would be considered community property if located in that state. However, in California, property acquired while married and domiciled in a non-community property state does not become community property just because the married parties move to a community property state.
In a community property state, any asset acquired during a marriage is considered to be a community property and hence all assets acquired by any one spouse during marriage belong to both of them equally. Under community property law, certain assets acquired after marriage can be classified as separate if not co-mingled.
Several federal statutes with respect to taxation are specifically directed to community property. In re Martin, 2009 Bankr. LEXIS 1722 (Bankr. N.D. Tex. 2009), the court stated that personal earnings are under the sole management and control of the spouse who earned them, the tax refund generated from excess withholding of those earnings is as well. Applying 11 U.S.C.S. § 541(a)(2)(A), a court has held that to the extent that the income is attributable to one spouse’s sole management community property, the refund from the excess tax on that income is the sole management community property of that spouse. When there is an overpayment of income taxes by married couples, the overpayments are apportionable to each spouse to the extent that he or she contributed to the overpaid amount. Accordingly, filing jointly does not give one spouse an interest in the income of another.
Community property states classify the following as a married couple’s joint property:
- Any income received by either spouse during the marriage.
- Any real or personal property acquired with income earned during the marriage. This includes vehicles, homes, furniture, appliances and luxury items.
- Any debts acquired during the marriage.
Also, separate property in a community property state includes:
- All property owned by a spouse prior to marriage.
- Any property obtained by a spouse after a legal separation.
- Any property received as a gift or inheritance during the marriage from a third party such as joint banking accounts.
- Any pre-marriage debts.
However, separate property can transform into community property. For example, if a spouse owns property before marriage and adds the new spouse’s name to the deed, then that property becomes community property.
Provisions of section 32-906 of Idaho separate and community property law, provides that income of all property, separate or community, is community property unless the conveyance by which it is acquired provides or both spouses, by written agreement declare that all or specifically designated property and the income from all such specifically designated property shall be the separate property of one of the spouses or the income from all or specifically designated separate property be the separate property of the spouse to whom the property belongs. Such property shall be subject to the management of the spouse owning the property and shall not be liable for the debts of the other member of the community.
However, it is important to note that there are no two community property states with exactly the same laws on the subject. For instance, if income from separate property is separate in one state, then in a civil law state, the income from such separate property is community property. Some states have created a newer form of community property, known as community property with right of survivorship.