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Community Property vs. Separate Property
This property designation further concerns the ownership of real property by legally married couples. It applies to real and personal property. As explained above, ownership of property as tenants by the entirety would control with regard to real property. Generally, property held by a married couple is either classified as “marital property” or “separate property”.
Marital Property – Is owned equally by both spouses and each spouse’s consent must be present to legally sell the property.
Separate Property – Belongs to one spouse or the other. It does not require the consent of both spouses to sell or transfer.
There are two systems in the United States for determining whether property is marital or separate. One system follows the “common law” rule and the other follows the “community property” rule.
Common Law Rules – Common law states that martial or separate property is determined by whose name is on the title, who purchases the property, or who receives it as a gift.
Community Property Rules – In states observing community property rules, all property acquired during the marriage is considered marital property, with the exception of property acquired before marriage, property inherited, or received as a gift. This rule is analogous to the concept of property owned as tenants by the entirety. This rule becomes important in the event of divorce between the parties. The court will be forced to determine who owns property.
- Example: Tom and Jane are married. Their primary possessions are a home and a car. Determining who owns the property will depend on whether it is marital property or separate property. If the state is a common law state, whoever’s name is on the title to the home and car own it. If it is a community property state, ownership depends on whether the home or vehicle was acquired by an individual prior to marriage or pursuant to a gift or inheritance. If it was purchased during the marriage, it will be considered community property.
Discussion: Which do you believe is most fair to spouses, community property laws or equitable distribution laws? Why? What is an argument for or against following equitable distribution principles? Community property principles?
Practice Question: Ervin and Betty are husband and wife. Over the years they have acquired several parcels of real estate. The real estate is always registered in Betty’s name. Terry, a general contractor, approaches Betty about purchasing one of the properties. Who has the right to sell the property? What do we need to know about the law of the jurisdiction to answer this question? Why?
- In community property states, most property acquired during marriage (except for gifts or inheritances) is considered community property (owned jointly by both partners) and is divided upon divorce, annulment, or death. Separate property is owned by one spouse only. It is property purchased by one spouse, titled to once spouse, or property that a spouse brings into the marriage or receives via gift or inheritance during the marriage. In a community property state, spouses own equally almost all property that either one acquires during the marriage, regardless of whose name the property is in. From the example in the practice question, whether Ervin and Betty have equal rights to sell of any of their properties will turn on whether the state is a community or separate property state. This is true, regardless of the fact that Betty’s name is on the deed. https://www.diffen.com/difference/Community_Property_vs_Separate_Property
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Oldham, J. Thomas, Calculating the Community Property Claim in Texas When Time, Toil and Talent are Contributed to a Separate Property Business (December 4, 2018). Texas Bar Family Law Section Report (Winter 2018); U of Houston Law Center No. A-14. Available at SSRN: https://ssrn.com/abstract=3296017
Richardson, Sally Brown, Privacy and Community Property (April 20, 2017). North Carolina Law Review, Vol. 95, No. 3, 2017; Tulane Public Law Research Paper No. 17-6. Available at SSRN: https://ssrn.com/abstract=2955751