Understanding Community Property and Separate Property

When planning your estate, it’s essential to understand how property ownership works—especially in states that recognize community property. The distinction between community property and separate property can determine how you manage, divide, and eventually distribute assets to your loved ones.

States With Community Property Rules

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

Any income, property, or debt acquired during the marriage in these states is typically considered jointly owned.

Let’s say Maria and Diego are married and living in California. During their marriage, they buy a home and start a small business. Even if the home deed and business are in Maria’s name, both assets are considered community property. That means Diego owns half of both.

What Is Separate Property?

Separate property, by contrast, refers to assets that are not jointly owned—typically those acquired before the marriage or received individually through a gift or inheritance.

What Qualifies as Separate Property?

• Assets owned before marriage
• Gifts received by only one spouse
• Inheritances left to only one spouse
• Property acquired after legal separation

Before marrying Diego, Maria owned a condo in her name. Even after their marriage, she rents it out and deposits the income into a separate account. As long as the funds and ownership remain unmingled, that condo and its rental income likely remain her separate property.

How Community and Separate Property Affect Estate Planning

Understanding the difference between community property and separate property is critical when figuring out how to distribute your assets. (Take note, unmarried couples.) It can impact:

• What goes into your trust
• What passes to your spouse automatically
• How much flexibility you have in naming beneficiaries

Blending Assets—A Gray Area

Problems often arise when separate and community property get mixed. This is called “commingling.”

For example, if Maria uses income from the couple’s joint account to renovate her separate condo, it could cause the condo to be reclassified—wholly or partially—as community property. That shift could affect how the asset is distributed later on.

In Community Property States

In community property states, spouses can only control their 50% share of community property. That means:

• They can only bequeath half of a jointly owned asset.
• The surviving spouse automatically retains their half.

Let’s say Diego creates a trust and includes the couple’s jointly owned business in it. He can only assign his 50% ownership share. The other half remains Maria’s, regardless of the trust instructions.

In Common Law States

In the rest of the U.S. (called “common law” states), property ownership depends on whose name is on the title. Joint ownership is possible but must be clearly documented.

This gives individuals more flexibility but can also cause confusion—especially with unclear records or outdated beneficiaries.

Why the Difference Matters

Knowing whether an asset is community or separate property can help avoid:

• Disputes among heirs
• Inadvertent tax consequences
• Probate complications

It also makes it easier to assign assets clearly in trusts or wills and ensure your wishes are carried out effectively.

Understand the Distinction

Whether you live in a community property or common law state, understanding the distinction between community property and separate property is a cornerstone of thoughtful estate planning. Taking the time to classify your assets correctly—and documenting that classification—makes it easier for your loved ones to carry out your wishes later on.