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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 law.

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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 purposes.

"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."

Same-sex complications
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 as taxable.

"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."

 
 
Next: "... we're going to end up legalizing gay marriage ..."
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