|Community property, common law, assets and debts
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Let's say you and your spouse move to New York, a
common law state, but keep the home you bought while married in
California, a community property state. Let's further say that both
homes are titled in your name alone. In a contested divorce, your
spouse could claim, and would likely be awarded one-quarter, to
one-third of your house in New York, under common law, but half
of your house in California, which remains under community property
Similarly, if you moved from New York to California,
you would each own a half-share interest in your California house,
regardless of whose name is on the title, because it was acquired
during marriage in a community property state.
Another exception to community property involves
pensions. In general, most private and military pensions are considered
community property, at least the portion you paid into the pension
or earned during the marriage. But federal pensions, including Social
Security and railroad retirement, are considered individual, not
community property, under federal law.
Couples can, again, overrule the marital property
laws of their state by signing a prenuptial or postnuptial agreement
stating their preferences or by gifting money or real property in
writing to transmute them into either individual or community ownership.
Couples in second or third marriages often choose to keep some assets
and even their incomes separate in this way for estate planning
"Spouses can divide things any way they want,"
says Clifford. "The only wrinkle is, you'd better make sure
there is an equal bargaining power in the agreement." Otherwise
it may not hold up in litigation, he says. "But as long as
it's fair, and both spouses want it, they can do whatever they want."
Community property holds some potentially eye-opening consequences
for same-sex couples in California, where legislation known as AB
205 extended the state's community property laws to state-registered
domestic partners in January 2005.
Same-sex couples have been able to register as domestic
partners in California since 2000, but doing so had no impact on
the couple's financial status. With the passing of AB 205, however,
suddenly couples find they may be subject, retroactively, to the
same community property and spousal support laws and responsibilities
as married couples.
What's more, because the federal government does not
recognize California's domestic partnership as a marriage, the Internal
Revenue Service plans to treat any distributions from a divorce
"So you have this horribly anomalous situation
where the $100,000 that I saved thinking it was all mine has just
retroactively become half my partner's, yet if I have to turn it
over to him, the IRS may treat it as a gift, even though if it happens
in divorce I certainly don't think of it as a gift," says Hertz.
"It's a horribly complicated situation."