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How Living in a Community Property State (Like Texas) or a Common Law State Affects Your Estate Planning
Every state has unique statutory requirements for creating, integrating and implementing its estate planning laws. Every state, likewise, has unique marital interest laws that affect an estate plan. Therefore, if you are married or plan on being married, it is imperative that you consider the impact of your state’s marital interest laws on your plan. Why? Because you can’t give up that which you don’t own. In summary, overlooking marital interest laws in creating and integrating your estate plan can be fatal to your plan and, therefore, fatal to implementing your wants and desires as to your loved ones. For example, this blog will explore how living in a common law state or a community property state impacts the way certain assets are owned by married couples.
What is the difference between a community property state and a common law state?
There are only nine true community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska is a “swing” state where the spouses can elect treat their assets and liabilities as community property. The remaining states are common law states. So, what does this mean?
In a community property state (like Texas), property acquired by either spouse while married is presumed to be community property, i.e. salary, a bonus, a dividend, etc… However, property acquired by a spouse prior to the marriage by gift, devise or descent is presumed to be that spouse’s separate property. These presumptions can only be overcome by legal documents changing the character of the property such as a prenuptial agreement or partition agreement.
In a common law state, each spouse separately owns any property that they had before marriage and any property that they acquired during marriage, such as a salary. Neither spouse has any kind of ownership interest in the other spouse’s property.
Why is this important? Because you can’t give away that which you don’t own. How property is classified affects rights of ownership, rights to income from property, rights and duties of management and control, rights to make lifetime gifts in the event of divorce, and rights to dispose of property at death.
And, with respect to debts, liability is determined for spouses differently in community property states than in common law states. Since there is community property, some may think that there must be community debts as well. But, this is not correct. For example, in Texas, the debt is attached to the asset and the liability for that debt goes to the person who manages that asset or is responsible for that debt either directly or indirectly. It is important when you are doing your estate plan that you have the assistance of an estate planning attorney in determining what is community property, what is joint management, control and disposition property, what is sole management, control and disposition property, what are the respective rights of the managerial spouse and what is separate property.
In separate property states, the asset and the debt belonging to each spouse stays that spouse’s asset and debt, i.e. if a sole individual is named as the owner of any account, asset or debt, it is considered theirs…and only theirs. Common law states do not consider spouses jointly responsible unless both names appear on the account or deed.
For the foregoing reasons, estate planning can be complicated. Then, there is always the complication of moving from a common law property state to a community property state.
Moving from a community property to a common law state, or vice versa
Anytime you move to a new state—regardless of whether that state is a common law or community property state—you should have your estate plan reviewed by a qualified attorney in that state because the character of property does not change from one type to the other just because you step over state lines.
Therefore, you need someone who will know your new state’s estate planning and marital interest laws like a local estate planning attorney, and they are best equipped to ensure the validity of your estate plan, or make the necessary updates to ensure your wishes can be seamlessly carried out upon your death.
Contact The Law Firm of Blanche D. Smith, P.C.
Attorney Blanche D. Smith and her team are here to help guide you through the estate planning process, whether you just moved to Texas from another state, or have lived in Texas your whole life. Contact us using the brief form below, or register for one of Blanche’s upcoming free workshops!