So What’s This Community Property Thing I Hear About and Why Is It Important?

You may have heard people in California or Washington talk about “community property.”  The concept is recognized in eight states (and something very similar under another name in Wisconsin), including all four of the states that border Oregon, but not Oregon itself.  The basic idea is that property acquired during a marriage (or domestic partnership in Washington) is held by both spouses (or partners), and both have rights in it.

Community property is important in three major situations:  purchase and sale, divorce, and inheritance.

Purchase and Sale

If community property is sold, it may be advisable for both spouses or partners to sign to demonstrate that both of them are giving up their rights.  Oregon usually requires both spouses or partners to sign on sale of land for a different reason.  If the parties are married or in a domestic partnership at the time of acquisition, the law presumes that it is held in a form that both have to agree to a sale, or the buyer won’t get the full rights.  In both Washington and Oregon, if you want your real property held in a different form, you have to make it clear in your deed, which means you have to tell the title company to describe it as “tenants in common” when you buy it. This clarifies that the property is held half-and-half in Washington and can be sold separately in Oregon.

Divorce

In a California divorce, the law requires community property to be split down the middle unless the parties otherwise   agree.  In Washington and Oregon divorces, the law only requires that the parties’ property be divided fairly, which may or may not mean 50-50.  The Washington courts have ruled that if necessary, the court can divide community property other than 50-50 to achieve an overall fair result, but it doesn’t happen very often unless the separate property is particularly imbalanced.

As a practical matter, Oregon and Washington generally have similar results because of a feature of Oregon divorce law.  In Oregon, both spouses or partners are generally presumed to have equally contributed to anything acquired during the marriage, and non-economic contributions are specifically recognized.  It generally takes unusual facts, such as extended separation, severe disability, or a gift clearly intended to be given separately, before the courts will rule that the presumption of equal contribution does not apply.  This is important because the courts usually will not divide property acquired during the marriage or partnership unequally unless necessary to achieve a fair result, which usually means that the premarital property has to be disproportionately held by one spouse or partner and the relationship to have lasted a fairly long time.

Oregon and Washington also prefer not to divide individual pieces of property 50-50.  Instead, the courts prefer to allocate assets to one or the other spouse in order to enable them to disentangle themselves, and the total value is often looked at when deciding whether the distribution is fair.

Oregon courts will recognize that out-of-state property may be held as community property, but they will apply Oregon rules in distributing it.  That means that if the spouses or partners hold community property in California, it may be divided other than 50-50

Inheritance

In inheritance situations, community property does make a difference.  Oregon inheritance law allows each spouse or partner to distribute the property that he or she owns and looks to the title.  Some items, such as real property held as spouses or partners or joint bank accounts, will pass automatically to the spouse or partner.  Most of the rest will usually be passed by will or trust.  If there is no will or trust, the spouse or partner gets half, and if that spouse or partner is also the parent of all of the children (or if there are no surviving descendants), the spouse or partner will also get the other half.  If there are descendants not descended from the spouse or partner, the descendants share the second half.  The spouse or partner is protected against disinheritance by a law that, depending on the length of the marriage or relationship, the spouse or partner may claim five to 33 percent of the combined property of the spouses or partners if the will (or lack of a will) would result in his or her receiving less.

In Washington, if there is a will, it affects only half the community property.  The other half goes to the surviving spouse or partner as protection against disinheritance.  If there is no will, the spouse or partner gets all of the community property and at least half the separate property.  The other half of the separate property goes to the descendants of the deceased spouse, regardless of parentage.  If there are no descendants, the second half is divided between the surviving spouse and any surviving parents of the deceased spouse.  If the parents also have died, then the surviving spouse gets everything. Placing property in a trust will supersede the no-will rules (and a will, because it’s now trust property), but if the spouse or partner doesn’t want to put the community property into the trust, only half would go in.

Washington does allow spouses or partners to sign agreements declaring property to be community or separate property, either before or during the marriage or partnership.  These should be discussed and negotiated openly and in good faith, and usually will require a good faith disclosure of each spouse’s or partner’s holdings that might be affected.  These agreements are subject to later challenge that the spouses or partners did not follow them, so care should be taken to ensure that all property holdings are documented as stated in the agreement and treated as the agreement states.

Similarly, Oregon allows premarital agreements and agreements during marriage to affect how property is divided at divorce or death.  Full disclosure and good-faith negotiations are generally required.

If you have any questions regarding marital property holdings, you probably should review the documents of that property carefully, and, if you have any further questions, consult a lawyer.

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2 Responses to So What’s This Community Property Thing I Hear About and Why Is It Important?

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