Community property or separate property?

When married couples create their estate plan, an issue that sometimes arises is whether or not certain assets are "separate" property or "community" property.  In fact, the characterization of property can lead to disagreements.  

Simply put, assets accumulated during a marriage are generally presumed to be community property, meaning the property belongs equally to both spouses.  For example, lets say John and Sally buy a house together during their marriage.  One day, John decides that he wants the house to go to his brother Stan after John passes away.  John even goes to a lawyer and creates a will that says, "My house shall go to my brother Stan after I pass away."  You see, that's not going to work because the house also belongs to Sally too.  John can't simply give that house away unilaterally. It's not his to give away.  The house is community property.  

However, let's say that Sally's parents pass away and she inherits their vacation condo in Big Bear. In California, anything one inherits or receives as a gift is generally presumed to be the separate property of that person.  Sally takes title to the condo but keeps it in her name.  In Sally's will, she gives the condo to her cousin Fred if Sally passes away.  Can she do that? She probably can because the condo is Sally's separate property. Generally speaking, a husband and wife can dispose of their separate property any way they wish.  Sometimes, a husband or wife in a married couple inherits property and they want to make sure it stays on their side of the family. Characterization of property is very important.  

Recently, I met a lovely lady named Susan.  She had two children from a prior marriage.  Many years ago, Susan's husband died.  A few years later she married Tom and they lived together in Susan's house for 20 years.  However, during that time, Tom made many improvements to the house, paid for repairs, helped pay the property taxes, etc.  Susan wanted the house to go to her children after she passed away.  I told her that would be fine, but it would be best to make sure that Tom agreed the house was indeed her separate property.  It's not that Tom would have made a stink about it, but he had children of his own and I was concerned Tom's children might try to lay some claim to the home after all the money and time Tom spent on the house.  Tom agreed and signed the separate property agreement.  Susan's living trust provided that if she died first, Tom could remain living in the house until he died or decided to move out. Then the property would indeed be distributed to her children.

The inverse is also true.  Roger and Betty got married late in life. When Roger died, his brother Skip showed up and tried to get all of Roger's artwork.  Skip told Betty the paintings were owned by Roger before he got married to Betty, and therefore, the artwork belonged to Roger's side of the family.  Well, when creating their estate plan, Roger and Betty had signed a community property agreement that specifically stated that all their belongings, including Roger's paintings, were "community property" and therefore belonged to Betty after Roger died.

A property agreement between spouses can be a very helpful legal tool when it comes to clearly designating property as community or separate. If your estate is facing similar issues, call our office to see if we can help.