Law Offices of Will Morris

Law Offices of Will Morris

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Showing 1 entry categorized by Community Property

Community Property – The Brady Bunch

Texas is one of only eight “community property” States in the US, with two other States having community property principles.** 

Community property is a matter of marital law and although it’s comparison with separate property is most often associated with marriage and divorce, this discussion is primarily concerned with the impact it has upon the death of a spouse, particularly among blended families.  When a married person dies without a Will (intestate) the distinction can become acutely tragic.  A surviving spouse may be surprised to learn that they own only one-half (or less) of an asset they have enjoyed throughout a marriage – particularly when the other one-half is then owned by the children, parents, or siblings of the deceased spouse. 

The Brady bunchHowever, for even the happiest of Brady Bunch families, the proverbial elephant in the room cannot be ignored.

Without appropriate planning, a surviving spouse can experience undesirable and sometimes draconian results that neither spouse intended. 

The blended family dynamic may also include a disparity between separate property assets, a family business, and the relative ages and needs of children – his, hers, and ours.  

Even without children, one spouse may own substantial assets as their separate property.

Quite candidly, in the traditional one and only marriage, children by the same marriage, collegial family dynamics, the accumulation of substantially all assets during a marriage, and traditional considerations for disposition of property at the death of a spouse, the details of community property may simply operate in the background, without further concern. 

This article is written as a basic primer touching on a few general concepts for married couples living in Texas, moving to Texas, or moving from Texas to a non-community property State -- it is not a substitute for a consultation with an estate planning attorney but is instead intended to raise your level on inquiry.

It is possible that a husband and wife have enjoyed, used, and benefitted from all of the assets within a marriage as one family unit without distinction.  However, looming beneath the surface there are three different types of asset ownership – (i) community property owned 50-50 between spouses, (ii) separate property owned 100% by the husband, and (iii) separate property owned 100% by the wife.

Community property is best understood by looking at both what it is and what it is not - with an understanding that there is strong presumption in favor of community property in a marital relationship.  Generally, if there is a dispute among spouses or heirs, the burden of proof is on the parties asserting that certain property is separate property.

What it is – As a general rule all property acquired during a marriage is considered community property, even if the title to the property is in the name of only one spouse.  It is not the title that controls, but the timing of when the asset was acquired.  Each of the following are considered community property:

  • Compensation earned during a marriage.
  • Property purchased with community property funds.
  • Income, dividends, interest, and capital gains earned on community property.
  • Income, dividends, and interest earned on separate property.

What it is not – The Texas Constitution – Article 16, Section 15 outlines the characterization of separate property to include:

  • Property acquired prior to a marriage.
  • Property acquired by gift, after marriage.
  • Property acquired by inheritance after marriage.

Estate Planning Concerns for Married Couples Dying Without a Will or Plan

  • Community Property does not presume a right of survivorship to spouse. Each spouse only owns 1/2 of community property assets.
  • Community Property, no children – all to surviving spouse.Community Property with all children of current marriage – all to surviving spouse.
  • Community Property with children from a prior marriage – surviving spouse will receive 1/2 and children by prior marriage will receive 1/2.
  • Separate Personal Property with children– 1/3 to surviving spouse – 2/3 to children of deceased spouse.
  • Separate Real Property with children– 1/3 life estate to surviving spouse – remaining 2/3 life estate and remainder ownership to children of deceased spouse.
  • Separate Personal Property, no children – All to surviving spouse
  • Separate Real Property, no children – 1/2 to surviving spouse – 1/2 to mother/father and/or brothers/sisters of deceased spouse.

Topics For a Later Discussion – Or to Ask Your Attorney Now

  • Tracing – Applies when Separate Property and Community Property are commingled.
  • Inception of Title – Property retains its character based upon (i) when acquired and (ii) character of funds used to acquire.
  • Separate Property Family Businesses –
  • Claims for Reimbursement – Texas Family Code Section 3.401, et seq.  Applies when community property funds enhance or pay debt on separate property and vice versa.

And, In Conclusion – Since this discussion is intended for the uniformed or barely informed client and not a legal treatise for attorneys or other planning professionals, I trust that sufficient awareness and in some places concern, have been raised. 

The call to action is to schedule consultation with an estate planning attorney and implement the necessary strategies to minimize or eliminate potential problems that might arise at the death of a spouse.  Any one or more of the following strategies may be used manage expectations and avoid surprises.

  • Wills and Trusts – Spouses by designate the distribution and management of both community property and separate property to each other, to children, or to third persons as they desire.  No surprises.
  • Pre-Marital Property Agreement (Pre nup) – Prior to marriage parties can agree on character or property as community or separate.  Although commonly thought of in terms a divorce, applies equally to estate planning.
  • Marital Property Agreement – Partition or Exchange of Community Property (Post-nup) – After marriage husband and wife can agree that community property will become separate property, including the income from that property.  May be used for estate tax planning and funding of irrevocable life insurance trusts.
  • Agreement to Convert Separate Property to Community Property – After marriage a husband and wife may wish to own everything equally.  Requires a formal agreement, simply adding a spouses name to a title is not sufficient.

** The other States are Arizona, California, Idaho, Louisiana, Nevada, and Washington.  In recent years Wisconsin has adopted the Uniform Marital Property Act which resembles community property laws.  In addition, Alaska has created a system that applies community property principles for Federal income tax purposes, but I don’t think about Alaska much.

© Will Morris, JD, LLM 2014