Property Ownership Rules

Property ownership rules for a married person can be complex. Rules affecting ownership of property acquired during marriage may restrict the right to leave property. There are two systems governing a married couple’s property; the one that applies to your client depends on what state your client lives in. The majority of states follow the common law system where, in general, the owner of the property is the person whose name appears on the ownership document. The other system, applicable in 10 states, mostly in the West, is community property, where most property acquired during a marriage is owned equally by both spouses.

 

There are 10 states that follow community property (c/p) law: Alaska (if agreed to in writing by both spouses), Arizona, California, Idaho, Louisiana (a form of c/p based on French law—and not covered in these readings), New Mexico, Nevada, Texas, Washington, and Wisconsin. All other states and the District of Columbia are common law states. 

 

In community property states, spouses share ownership of most property, even if only one spouse’s name is on the title. However, if a c/p spouse inherits or is gifted money or assets, those assets are that person's separate property. Furthermore, assets acquired prior to marriage are also separate property. Separate property in a c/p state can become c/p if it is commingled with c/p assets or is titled as c/p (e.g., one spouse gifts separate property to the community). In c/p states, each spouse is free to leave his/her half of the property as desired, but has no control over the other spouse’s half of the c/p.

 

In the common law states, the spouse whose name appears in the ownership document owns that property. However, unlike c/p states, these states provide that each spouse has a legal right to claim at least a minimum portion of the other’s property at death, even if the deceased spouse left it all to someone else. If the client plans on leaving a spouse more than half the property, these laws are not applicable.

 

If you think marital property laws could affect a client’s situation, you need to know: [1] client’s state of domicile, and [2] property ownership laws of that state and any other state where the client owns property. The client can have only one domicile. The state of domicile governs marital property—except real estate in another state or country. If the client has homes in two or more states, which is chosen as legal domicile can be important, both for property ownership and state inheritance tax purposes. Given a choice, it is usually best to opt for a state that imposes no, or low, property taxes. Real estate is controlled by the law of the state or country where it is located, no matter where you live.