What Is Community Property?

Nine states use a community property system for married couples: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. (Alaska allows couples to opt in.) If you live in one of these states, the rules about who owns what during marriage — and who can give what away in a will — are different from the other 41 states.

In a community property state, most assets acquired during the marriage are owned equally by both spouses — 50/50 — regardless of whose name is on the account or paycheck. Your salary is community property. The house you bought together is community property. The retirement contributions you made while married are community property.

Each spouse owns half of all community property. In your will, you can only give away your half.

Not everything is community property. Separate property includes:

— Assets you owned before the marriage — Gifts or inheritances received by one spouse, even during the marriage — Assets acquired after a legal separation — Property that was kept completely separate and never commingled with marital assets

Separate property stays yours. You can give it away in your will however you choose. The complication: separate property can become community property if it gets mixed with community funds — for example, depositing an inheritance into a joint checking account.

You can only give away what you own. In a community property state, that means:

— You can give your half of community property to whoever you choose — Your spouse's half of community property is theirs — you cannot give it away — You can give away all of your separate property

If your will tries to give away more than your share, the provisions affecting your spouse's half won't be valid.

The default rule in most community property states: the surviving spouse keeps their half and receives their spouse's half as well — unless the will says otherwise. But this isn't universal, and the specifics vary by state.

If you want your half of community property to go somewhere other than your spouse — to children from a prior relationship, for example — your will needs to say so explicitly. This is one of the more complex areas of estate planning in community property states, and for larger or more complicated estates, consulting an attorney is worth it.

One significant advantage of community property: when one spouse dies, both halves of community property receive a "stepped-up" basis for tax purposes. This means your heirs may pay significantly less capital gains tax when they sell inherited property.

In a common law state, only the deceased spouse's half gets a stepped-up basis. The surviving spouse's half does not. This distinction can mean a meaningful tax difference for appreciated assets like real estate or stock.

If you've lived in both community property and common law states, your property may be a mix of both types depending on where it was acquired. This can get complicated. If you've moved from California to New York (or vice versa) with significant assets, having an attorney review your estate plan is advisable.