Community Property: How it Impacts Your Estate Plan
My married clients think they know what they own, but usually it’s much more complicated than they realize because we live in a community property state. Community property is anything earned during the marriage, such as the paycheck you just deposited into your bank account. Separate property is anything you owned prior to the marriage or received as a gift, inheritance or certain settlements from lawsuits.
Most of my clients don’t realize that by commingling that paycheck into their separate account, they are changing the nature of the separate account to community unless they can “trace it.” “Trace it” means hiring a forensic accountant to go back in time and decipher when the assets became commingled and allocating the growth proportionately between the community and separate property.
To make things worse, my clients then write a check out of that separate but now commingled checking account to pay the mortgage on their inherited home (originally separate property). Now the check is considered community property so it’s commingling the equity on the home creating a community property interest in the spouse – even though the spouse’s name doesn’t appear on the deed. That’s why lenders require spouse’s to quitclaim their interest in separate property houses during a refinance – they know that a small portion of the home is probably community property.
So, when you write a last will or a trust to gift your home to your family upon your death, it may create a problem if you don’t actually own 100% AND you’re trying to gift it to someone other than your spouse. You can only gift what you actually own. Lack of clarity in this regard is the making of lawsuits and family conflict. To clarify what you actually own, you may want to “opt-out” of messy California community property law by creating a post-nuptial agreement.
I recommend working with family law attorney Camille King who may be reached at (510) 859-7377 or by email at email@example.com.
She’s the best!