Understanding the Community Property Concept

Community property is property that is acquired after the date of the marriage by the joint work, sacrifice and stress of both you and your spouse. Each spouse owns one half of these assets, whether they are divided, divisible or not. This ownership interest defines what each spouse owns during the marriage.

Not all property acquired after marriage is community property. If one spouse receives a gift, or regular gifts, from their family members, for example, that property is the separate property of that spouse. The designation of this property as separate [whether it is "separate" or "community" is called the character of the property] can change in certain circumstances.

If the gift is used to pay for food, shelter or other marital purposes benefiting the other spouse, this previously separate property may now become community property since it may be deemed to have been "donated" to the marital community. This is a generalization and there are many factors that make up the character of the property. Courts use complicated principles and formulas in an attempt to determine the character of certain marital property.

Also, property acquired before the marriage may be either community or separate property depending upon the use of the property after the marriage. For example, if one spouse had $40,000 in Certificates of Deposit before a marriage and the Certificates were simply renewed and the proceeds reinvested, the Certificates might likely remain separate property. However, if the Certificates were used as collateral for a marital loan that was taken out to purchase furniture for the spouses' house, this can, in some instances, arguably, change the character of the property. Such a situation might be one that must be resolved by the court system.

Agreements Defining the Character of Property

Premarital agreements, often called prenuptial agreements in some states, can help to specify before a marriage what the character of each piece of property owned by each spouse will be. While these agreements sometimes make for nice neat resolutions of property disputes upon divorce, the idea of planning for divorce sometimes prevents couples from entering into these agreements. Also, what is often not discussed about a prenuptial agreement is that once made, it can be modified by the conduct of the spouses or spouse during the marriage.

An example may illustrate this point. Assume that a spouse has $100,000 in stocks before being married. The couple enters into a valid prenuptial agreement in which it is specified that the stocks are the separate property of the one spouse and any dividends or interest from these stocks will be reinvested and remain the separate property of the spouse also.

After five (5) years of marriage, the spouse decides to stop the reinvestment of the dividends and interest and designates these to be deposited each month in the couple's checking account to be used to purchase food and shelter. This practice continues for five more years.

What is the character of the stock now? What is the character of the dividends and interest now? First, the stock would likely remain the separate property of the spouse pursuant to the agreement. However, it is entirely possible that the other spouse could argue that the dividends and interest income became a community asset. The final determination would depend on other factors during the marriage, but it is possible that the prenuptial agreement could be considered to be modified by the subsequent conduct of the parties during the marriage.

These principles may serve as an introduction to the community property laws. Your state may not have these, but if it does these principles might help you better understand the need to seek the services of an attorney both before and during a marriage should questions arise concerning the nature of property. Please feel free to contact member services and speak to an attorney about your specific situation.