How California’s Community Property System Fits Into Your Estate Plan
If you’ve been following my blog for a while, you’ve probably seen me mention community property before, but it’s mostly been in passing. In this post, I’m going to delve into a little more detail about California’s community property system and how it affects your estate plan.
California is one of less than a dozen states that use a community property system. Under a community property system like ours, a married couple’s property is classified as either the separate property of one spouse or the community property of both spouses. A spouse’s separate property belongs 100% to that spouse, but each spouse has a 50% interest in any community property.
Here’s how the law determines what property is community property and what is separate property: Under section 760 of the California Family Code, community property includes all property that a married person acquires during the marriage while living in California. For instance, your wages during marriage are community property, meaning that your spouse has a 50% interest in them (even though you did all the hard work). Section 770 gives the major exceptions to that rule: Property that a married person owned prior to marriage or acquired during the marriage by gift or inheritance is that spouse’s separate property, along with the “rents, issues, and profits” of such property. For instance, if you rent out a house that you inherited during your marriage, both the house and the rents you receive are your separate property.
How does community property affect your estate plan? When one spouse dies, there’s no longer a “community” that can own community property. Consequently, what was community property while both spouses were alive is immediately partitioned. The surviving spouse retains his or her 50% interest in that property, and the deceased spouse’s 50% interest passes under his or her will or through intestate succession. It might go to the surviving spouse or others, depending on the deceased spouse’s estate plan (or lack thereof). That means if you’re married and planning for your estate’s disposition after you die, you only have testamentary power over your 50% interest in any community property, not 100% of it. Also, if you die without an estate plan, your spouse might be forced to share ownership of that property with other people!
What this means is that you need a plan for identifying and dealing with separate and community property. While I’ve tried to simplify California’s community property laws in this post, they can be quite complex. Sometimes, determining what is separate or community property can be harder than the Family Code sections I cited make it sound. As always, you should consult a knowledgeable estate planning attorney to help you understand this subject and come up with an estate plan that works for you.