Community Property

What Is Community Property?

Community property refers to a U.S. state-level legal distinction that designates a married individual's assets. Any income and any real or personal property acquired by either spouse during a marriage are considered community property and thus belong to both partners of the marriage. Under community property, spouses own (and owe) everything equally, regardless of who earns or spends the income.

Community property is also known as marital property.

Understanding Community Property

In community property jurisdictions, each spouse in a marriage is considered to own a share of the marital assets, including any financial or real assets acquired during the marriage. In some jurisdictions, such as California, community property is divided strictly in half, with each spouse getting 50% of any assets found to be marital property. In other jurisdictions, such as Texas, a judge may choose to divide assets in any denomination that they consider equitable to both spouses.

Usually, gifts to, and inherited assets of, one spouse are not considered community property. Assets acquired before the marriage are not considered community property (although in some jurisdictions, these assets can be commuted to community property). Debts acquired during the marriage can be considered community property.

For example, an IRA in the name of an individual with a spouse, accumulated during the course of a marriage, would be considered community property. Generally, the spouse of the retirement account owner who resides in a community or marital property state must be the sole primary beneficiary of an investment account designated as marital property, unless the spouse provides written consent to have someone else designated as the primary beneficiary of the retirement account.

The concept of community property exists to protect spousal rights. It originated in Spanish law, a system of civil law derived from Roman civil law and the Visigothic Code. It recognizes that both spouses contribute to a marriage in different ways, and considers both contributions financially equal under the law.

For example, community property considers the contribution of a breadwinning spouse who provides for the family and a homemaking spouse who cares for children and oversees the household as equal by awarding both spouses a share of the marital property, even though the homemaking spouse may not have brought financial or other assets into the marriage.

In the United States, nine states have community property laws:

Alaska has an optional community property system, in which spouses may agree to hold some or all marital property in common by creating a community property trust or community property agreement. Tennessee and South Dakota have similar systems.