Confusion abounds about what community property is, and how it works. Community property is defined in Washington law as property acquired after marriage or after registration of a state registered domestic partnership by either one or both spouses, or one or both domestic partners. Property acquired prior to marriage or the registration of a domestic partnership is generally not considered to be community property. Simple enough, right?
In reality, working through issues involving community property can be complex. I note that our office’s Washington Community Property Deskbook is 722 pages long! No wonder people are confused! One aspect of community property is especially good to know, because it can save married couples quite a bit of money: In certain circumstances, a surviving spouse can avoid paying for the probate of a deceased spouse if the couple had executed a Community Property Agreement during their marriage.
What is a Community Property Agreement? It’s typically a short document containing various components, depending on what the couple wants. Specific components may include an agreement that:
- All property presently owned by either spouse individually, or that the couple owns together, is community property.
- All property that the couple will acquire in the future will also be community property.
- The couple may, either as part of the current agreement or in the future, carve out certain exceptions to the presumption that everything is community property, so long as they both agree in writing.
A Community Property Agreement often includes language that the agreement will be revoked if either spouse seeks a divorce.
If a couple has entered into a Community Property Agreement, and one spouse dies, the other spouse may be able to take that agreement along with a certified copy of the death certificate, and transfer over all accounts (bank accounts, investment accounts, etc.) into the survivor’s name. Title to real property can also likely transferred to the surviving spouse by recording the Community Property Agreement. As you can see, in many cases, a Community Property Agreement can be a handy, inexpensive tool to avoid the costs and hassles of probate.
However, a Community Property Agreement is not always a good idea. Suppose the couple has significant assets, so as to face potential estate tax liability? In this instance, a Community Property Agreement would not be smart, because it would not allow the couple to do the type of tax planning necessary to diminish or eliminate the tax. The survivor simply receives all of the assets, period. Or, suppose one spouse has significant separate property that he or she would like to keep individually? In that circumstance, a Community Property Agreement may not be a good idea unless the separate property is identified and carved out as an exception to the agreement. Or, suppose the surviving spouse needs to qualify for Medicaid? Again, the Community Property Agreement is likely not the best approach, since it does not allow an opportunity to do proper advance planning for those assets passing to the survivor.
Do you think a Community Property Agreement might be a good idea for you and your spouse? If so, please contact our office! We would be pleased to chat with you, and see if this agreement might work in your particular circumstances.
Photo Credit: Michael Kumm on Flickr