Ask A Lawyer: What is a community property state?

This article will appear monthly in this newspaper as a public service. It is not intended as legal advice, and will address only general propositions. If you have a question about a matter which affects you, you should contact an attorney.

Q: My wife and I recently moved here from Missouri. We have been told that Arizona is a community property state. What does that mean?

A: Most states in the United States are “common law” states.

They derive their concept of property from English common law.

Arizona, like California, Texas, Washington, Wisconsin, New Mexico, Nevada, and Idaho, is a community property state.

These states are community property states because of the Spanish influence.

History buffs may be interested in knowing that community property is traceable back to the Visigoths, barbarian invaders of Spain in the fifth century.

The primary difference between community property states and common law states is this.

In a common law state, the fruits of the husband’s labor belong to him and the fruits of the wife’s labor belong to her.

In a community property state, the fruits of the labor of husband and wife belong one half to each.

The Arizona statute on the subject declares that all property acquired by either husband or wife during the marriage is community property of the husband and wife except for that which is acquired by gift, devise or descent.

The exception is important. It means that property which is given to one’s spouse or inherited by that spouse is his or her separate property.

It is also important to note that property acquired before marriage remains the separate property of each spouse unless it is comingled.

The question asked most frequently by newcomers to Arizona is whether the community property laws affect property which they are bringing into Arizona from outside the state.

The answer to that is no. Separate property of the husband and wife brought into the state remains the separate property of each.

However, the parties may, through their own acts, convert separate property into community property.

For example, if one spouse takes his or her separate property and acquires property which is titled in the name of both spouses, he or she may have converted separate property into community property.

If one spouse brings separate property into Arizona and desires to maintain it as separate property, it should continue to be titled in the name of that spouse alone.

Separate property can also be converted into community property through commingling with community property.

One example is where one spouse establishes a bank account in his or her name alone with separate property, but then deposits his or her paycheck into that account.

The commingling of the separate property with community property may convert the entire account into community property.

It is not always easy to tell whether property is separate property or community property.

Title of an asset does not determine whether it is community property.

Property may be community property even though it is held in the name of one spouse alone.

For years the husband was deemed the manager of the community.

In these more enlightened times, both spouses may manage the community property.

Either spouse may hold community property in his or her name alone.

For example, if a wife takes her paycheck and invests it in securities in her name alone, those securities will still be community property, because the source of funds to purchase them was community property.

Whether property is community or separate is particularly important in the event of death.

Only one-half of a community property asset is subject to the testamentary directions of the decedent.

The other half automatically belongs to the survivor.

There are estate and income tax advantages which may be effected by holding property as community property.

Without going into the details, putting property into the form of community property may enable a husband and wife to both take advantage of the $3,500,000 exemption from federal estate taxes and shelter up to $7 million.

Also, upon the death of one spouse community property receives a stepped-up basis for income tax purposes, which can result in significant savings on income taxes upon a subsequent sale of the property.

In any event, in planning one’s estate, one should address the question of whether holding property as community property might be advantageous.

Prepared by Andrew Heideman, Esq., Duffield Adamson Helenbolt & Fletcher, P.C., Green Valley Village, 101 S. LaCanada Drive #65, Green Valley, Arizona 85614. Contact him at 625-4404.