Community property versus separate property — what’s mine is mine, or maybe it’s yours, or maybe not…

Idaho is what’s known as a “community property” state — one of 9.5 such states in the United States. (Alaska has an opt-in provision for community property, so it is the 1/2 state.) The rest of the states are “common law” property state. In those states, determining who owns what is generally straight-forward. If there is a written title document for the property (house, car, boat), then whoever is listed on the title owns the property. If there is not title, then whoever owned the money used to buy the item owns the item. “I bought that with my salary” = “I own it.”

In community property states, ownership does not depend on what the title says or on which spouse purchased the item. Instead, the basic rule is any money earned during marriage, and any debts incurred during marriage, are “community” property and belong (or are owed) by each spouse in equal shares (50/50). An exception is property one spouse received as an inheritance or a gift. Another exception is property one spouse owned before marriage. Those exceptions are known as “separate” property and, so long as they are maintained separately from community property, they are owned solely by the one spouse.

One problem that often arises is an issue known as “commingling,” where property that was separate property is mixed with community property. For example, one spouse inherits money from a deceased parent and deposits that money into the couple’s usual bank account — the same account into which the couple deposits their paychecks and out of which they pay their bills. That property has likely been transformed into community property.

Another complicating factor: in Idaho, ALL income is community, whether or not it was generated by separate property. (“All means all.”) So a problem occurs where income from separate property is rolled over into that separate property. It is very easy for a spouse to accidentally commingle the community income with the original separate property, potentially transforming the separate property into community.

The most common misunderstanding I see is the concept that one spouse bought something, say a car, with “his” money and he is the only one on the title. The assumption is that it is “his” car and that he should keep it at divorce or he can give it away at death. If the car was purchased during the marriage, using money he earned during the marriage, he owns half of it — his spouse owns the rest.

As a side note, spouses can enter into agreements to define what property is community and what property is separate. There are a number of reasons to do this. One is in contemplation of divorce. Another might be to try to qualify one spouse for Medicaid, Medicare, or some other government benefit. However, as with most areas of the law, trying to undertake such a process without good legal counsel is often a fool’s errand.

2 comments

  1. […] on from my last post about community property laws in Idaho, today I’ll look at various types of property ownership and the pros and cons of each. […]

  2. […] on my theme of community property and co-ownership of property, I wanted to address a common misunderstanding that creates a […]

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