Community Property

Terms:


Community Property Rule:
The rule, applicable in nine states, that dictates that property earned by either spouse during a marriage automatically belongs to both parties equally.


Historically, husband and wife were considered to be one person, and for the most part, the husband was that person. Under the historical common law rules, a husband had the right to control all marital property. The wife was also entitled to certain rights, mostly having to do with her support. It does not pay to get into a discussion of the various rights held by husband and wife against each other because, for the most part, they are obsolete. The rules that deal with spousal rights following a divorce and alimony are the subject of another course, Domestic Relations.

The one major common law concept in terms of marital property that remains today is the rule regarding “community property.” It should be noted at the outset that most states do not follow the community property rule. This is because “community property” is a concept that originated in continental Europe (i.e., Spain and France). Most of our common law tradition originated in England. Thus, only states that were formerly French or Spanish territories (or that were heavily populated by the Spanish or French) are likely to have held over the community property rule. Today, the only states that recognize the community property rule are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington. In addition, Wisconsin has adopted a system that closely reflects the community property rule. Note that Alaska is an opt-in community property state, whereby it gives the option to both parties to make their property community property. 

The “community property” rule dictates that all property acquired by one spouse during the marriage inherently belongs equally to both spouses. For example:

Assume that Shaquille is a basketball player in Los Angeles and he is married to Latoya. If Shaquille makes $20,000,000 in one year playing basketball, one half of that money will inherently belong to Latoya, even if she has no hand whatsoever in earning that money. The theory behind this rule is that, with her support, Latoya is enabling Shaquille to go out and earn the money.

However, the following property is excluded from the community property rule:

  1. Property acquired or held by one of the spouses prior to the marriage
  2. Property acquired during the marriage by a gift or inheritance from a third party
  3. Property acquired during the marriage by using resources (usually money) that are not community property (in other words, resources that fit into one of the above categories)

For example:

  1. Shaquille is a basketball player in Los Angeles. He makes $10,000,000 in 2003. On January 1, 2004, he and Latoya get married. None of that $10,000,000 is considered community property because Shaquille owned it before the marriage was entered into.
  2. June and Ward are married. One day, June’s uncle, Augustus, dies and leaves June $100,000 in his will. That money is not community property because June got it as a gift from a third party.
  3. June and Ward are married. One day, June’s uncle, Augustus, dies and leaves June $100,000 in his will. June takes $10,000 of that money and goes out and buys herself a diamond ring. That diamond ring is not community property because it was acquired with resources that were not community property.

If there is an income generated by a business that is started by using community property resources, some states will consider the income to be community property, while other states will consider such income to be separate property. There is also a split in community property jurisdictions as to whether money that comes from a pension plan of one spouse is considered community property. See e.g., In re Marriage of Brown, 15 Cal. 3d 838 (1976). For example:

June and Ward are married. One day, June’s uncle, Augustus, dies and leaves June $1,000,000 in his will. June takes that money and opens up a McDonalds, which generates $50,000 a year in revenue after expenses. Although the store itself is definitely not community property, some community property states will consider the income generated by the store to be community property.

 


See Also: