Community property in real estate: Everything you need to know
When you get married, you begin a partnership that often extends to other areas of life — like real estate, your finances and other assets. Community property is the legal concept that certain assets are automatically shared between spouses if they’re acquired during a marriage. But not all states recognize community property law, and some may deal with it differently depending on the scenario.
What is community property?
Community property may also be referred to as marital property. It is a state-level law encompassing the assets between a married couple — or in some states, a domestic partnership. The law typically designates that any income or assets (such as a home or other real estate property) obtained by a spouse during their marriage is shared and owned equally, between both individuals. This means, from a legal standpoint, it doesn't matter which individual acquired the asset after the marriage because it is now owned equally by both parties.
Community property states
Community property is enforced at a state-level but is not adopted by all 50 states in the United States. As of 2023, there are nine community property states in the U.S.:
- New Mexico
Some states who don’t recognize community property law may have an optional community property system, which may allow spouses or domestic partners to designate certain community property within a trust or other legal agreement.
How does community property work?
Community property becomes especially relevant during certain life events, like death, physical separation or divorce, when assets must be transferred or divided between parties. However, how exactly they are transferred may vary. In some states, assets may be split right down the middle. In other states, a judge may decide case-by-case who receives which assets and what is ultimately fair given the circumstances.
Typically, community property is dispersed, and the community estate is then terminated, upon the legal divorce and separation of two spouses. Depending on the state, community property might remain intact in the absence of a legal separation or divorce.
Debts accumulated during a marriage are typically considered community property as well. For example, if you owe money on a mortgage acquired during your marriage, the outstanding balance would traditionally be considered community property — even if it isn’t a joint mortgage.
In the event of a divorce, separation or death, the way debt is handled will depend on specific circumstances. Although certain debts may be considered community property, repayment may not be split evenly or demanded in full.
Assets not subject to community property laws
Although individual assets acquired during a marriage are often considered community property, there are some instances where this is not the case. For example, if a spouse inherits an asset from a late relative, this may not automatically become community property — although it could be become community property down the line, depending on how the spouses decide to handle the asset.
Can I avoid community property?
Perhaps the easiest way to avoid community property may be to live in a state that doesn’t recognize this law. In fact, if you move from a state that does recognize community property laws to one that doesn’t, your community property rights and obligations may be void.
Other potentially more practical ways of avoiding community property law are prenuptial agreements and post nuptial wills. A prenuptial agreement is a contract between two people (prior to entering a marriage) covering exactly how everyone’s assets will be accounted for throughout the marriage, as well as if the marriage were to end. A will is a legal document coordinating the distribution of assets and designating heirs to someone’s estate upon their passing.
Community property is the legal idea that a married couple (or sometimes, domestic partnership) shares assets acquired during a marriage. In the event of a divorce, separation or death, community property can affect how assets are ultimately distributed. Knowing whether you live in a community property state may help inform how you’re comfortable handling and sharing assets before entering a marriage.