Community Property vs. Separate Property
Knowing the difference between community property and separate property is vital to a successful estate plan. If you’re married in Louisiana, then you need to understand your property rights before you start your estate plan. Read on to learn about community property vs. separate property in Louisiana.
It is very common for estate planning clients to overlook this one particular concept.
When it comes to Louisiana estate planning, I’ve found that people often think about things like distributing the money in their bank account or what kind of funeral they want.
Maybe without putting pen to paper, there are even informal conversations between family members about the boat going to so-and-so, or certain jewelry getting passed down to future spouses.
But, many people can be surprised at what needs to be considered before drawing up the documents that make up their estate plan.
One of the most common areas where my clients need more insight is the concepts of community property and separate property.
These terms might seem straightforward, but it is important to consider the legal definitions and how they affect your property rights as a spouse in Louisiana.
In this post, I’m going to address the basics of community property vs. separate property, debunk a few myths, and hopefully give you tools that will help you create the best estate plan for you and your family.
If this is already feeling like a lot, you’re not alone.
Read this post, take some notes, and then get in touch with me when you’re ready to start your estate plan in Louisiana.
So, what’s the difference between community and separate?
A little while ago, I worked with an estate planning client who had been married for 50 years.
Once we were nearing the final stages of the estate plan itself, this client happened to mention a bank account that was in her husband’s name. This hadn’t come up in our previous discussions, so I started asking her questions about it.
I soon discovered that she’d thought the account was his separate property, so she hadn’t mentioned it.
This happens all the time.
Whether a bank account or an item of some value, spouses often overlook information that could affect their estate plan, especially according to Louisiana law.
In this particular case, the bank account was in his name and had never been something she used. But, it was an account that her spouse had opened during their marriage.
Because the account was created during their marriage, and the couple didn’t have a prenuptial agreement, this bank account could not be considered separate property.
Therefore it was community property.
This is such a common issue I run into when working with married couples, especially those who have been married for decades.
In many cases, these couples have children, grandchildren, and even great-grandchildren.
Often people think of community property and separate property based on how the property was used in their marriage. The ATV is his, he’s the one who uses it. The car is mine, I drive it. Things like that.
But, like the bank account that was only in one spouse’s name, it had been thought of as something that was separate property.
However, regardless of the arrangements made between spouses, it’s important to understand that community property and separate property are legal terms defined by the state of Louisiana.
That’s why these terms are incredibly important to understand when drawing up your estate plan.
Let’s get into the specific differences between community property and separate property.
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Louisiana is a Community Property State
This means that, with very few exceptions, property acquired during marriage is generally considered to be jointly owned by both spouses.
Due to Louisiana’s strong tradition of civil law, it is one of nine states in the US that has a community property regime for married couples.
However, like most things, there are exceptions to the rules and also specifications that need to be met before something is considered either separate or community property.
So, let’s break each concept down.
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Community property vs. Separate property according to Louisiana
Generally speaking, you can consider the following when determining which property is separate and which is community when preparing your estate plan in Louisiana:
Separate property generally includes:
Property owned before marriage
Property acquired by inheritance or gift during the marriage to only one spouse
Certain damages awarded to a spouse in an action against the other spouse
Damages for separate property
Property purchased with separate funds or exchanged for separate property, such as inheritance or income earned before the marriage
Property acquired with separate things or with separate and community things when the value of the community things is insignificant compared to the value of the separate things used
Community property that is voluntarily partitioned by the spouses
Community property includes:
Property acquired during the existence of the marriage through the effort, skill, or industry of either spouse (like your paycheck)
Property acquired with community things or with the community and separate things, unless otherwise classified as separate property
Property given to the spouses jointly
Natural and civil fruits of community property (like rent or timber-cutting proceeds from community property)
Damages awarded for loss or injury to a thing belonging to the community property
And all other property not classified by law as separate property.
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Why is this so important for Estate Planning?
Simply put, a person can only pass down the property interest that they own.
Before writing a will, it’s important to understand what you actually own and what rights you have in the property you want to pass the property on to loved ones.
If a will is written giving away something that is actually community property, the process of probate and succession can get complicated.
In a worst-case scenario, you could end up having people who do not get along as co-owners of the property.
For example, in Dad’s will, he clearly states that his house should pass on to his child. However, since that house is community property, then Dad can only give 50% of the house to his child.
According to the laws of intestacy, Dad’s surviving spouse owns the other 50% of the house outright.
If Dad wants to leave his ownership of the house to his child, then the child and surviving spouse would become co-owners of the property.
Meaning, it is not within Dad’s power to transfer full ownership of the house to his child.
If, for instance, the child and surviving spouse don’t get along, then this arrangement could cause lots of issues.
If this is a situation you find yourself in, then it might be a good time to reach out to a licensed estate planning lawyer in your state.
So, in the case of my client who’d been married for 50 years, the bank account ‘belonging’ to her husband is actually community property.
Therefore, the husband only has the ability to leave 50% of the account’s contents to any person.
The other 50% is owned by the spouse.
This concept applies to anything owned like cars, homes, stocks, and other assets purchased with community money, or with a portion of community money, during the marriage.
Even if the title on the boat is in one of the spouses’ names, it is still classified as community property.
Therefore, when it comes time to estate planning, specifically writing a will, it’s important to keep in mind that a person can only leave the property interest that they have in the property.
There is an exception to the normal community property laws when it comes to certain retirement accounts and beneficiaries.
Federal law trumps Louisiana law and the account will go to the person named on the beneficiary designation.
The surviving spouse may have reimbursement claims, which I’ll get into in a separate blog post.
Let’s debunk some myths about community vs. separate property:
Myth: If a property has a title with only one spouse named, then it is separate property.
False: the title does not control whether the property is community or separate.
Remember: to be separate property, the property should be purchased with separate property. If a spouse has no separate money, then the other spouse can donate the community property to the separate property or join the act of sale and declare that such property is separate property (community assets may not be used in the purchase of separate property).
Myth: If I get married, all my stuff becomes community property.
False: Assets acquired prior to marriage are considered separate property. Marriage does not automatically convert these assets into community property.
Exceptions: separate property that is ‘comingled’ with community property can become community property. This means that the separate property has become so intermixed with the community property that it has lost its identity as separate property and is presumed to belong to both people as community property.
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How do I know if Louisiana’s community property regime applies to me?
When you are a resident of Louisiana and get married, you are automatically enrolled in Louisiana’s community property regime. That is unless you opt out of it.
There are a few ways to opt out:
Sign a prenup: prior to the marriage, you enter into an agreement with your spouse to modify (or opt out of) the community property regime
Go to court: after the marriage, you have a court-supervised proceeding to modify (or opt-out). This doesn’t have to be associated with a divorce.
For married couples new to Louisiana: when moving to Louisiana from out-of-state, a married couple has one year to opt out of the community property regime using a prenuptial agreement. After one year they have to get a judge to sign off on it.
For the earnings on your separate property: you can file a declaration in the parish property records that reserves the fruits, products, and revenues of separate property as separate property. This is sometimes called a Declaration of Paraphernalia.
When it comes time to do your estate planning, it’s important to make sure that you’re making plans according to the agreements made in these documents.
I recommend that married couples with prenups or any sort of matrimonial agreement seek the advice of a licensed estate planning lawyer in your state when beginning the estate planning process.
Due to the fact that these documents directly affect the property rights of both spouses, it’s important to make estate plans according to these agreements.
When determining community vs separate property during the estate planning process in Louisiana, keep the following in mind:
Louisiana has a community property regime, which will affect the property rights of both spouses.
Signing a prenuptial agreement before marriage means that you can opt out of this community property regime.
A matrimonial agreement (aka prenup) can be entered into during a marriage but will need to be filed jointly and is subject to court approval.
The funds used to purchase property determine whether or not something is separate or community property. Meaning, it doesn’t matter if only one name is on the title or on the account, if community funds were used to make the purchase, then it is community property.
Inheritances can be deemed separate property, even when given during a marriage. It’s important to consider this when making your own estate plan.
Accurately assessing your property is key to a successful estate plan.
It is so important to accurately assess and inventory your belongings, especially if you are or have ever been married.
Incorrectly identifying community and separate property can lead to difficult and complicated succession proceedings.
For instance, If you want your spouse to inherit your stuff, then it’s important to properly identify and account for everything you own and write your will accordingly. Remember, within a marriage, you own 100% of your separate property and 50% of any community property.
So, If you’ve been married for a couple of decades, have kids, purchased homes, have rental properties, own businesses, and/or received inheritances from other family members, it’s a good idea to seek the guidance of a licensed estate planning attorney.
Doing so can ensure that your stuff goes where you want it to.
While there is no crystal ball, there are simple steps you can take with an estate planning attorney that will help you organize and fully understand everything you have and where it’s going.
Happy Planning!
Take Care,
Addie
It’s always a good time to plan for your family’s future.
FAQ
Q: Is something considered separate property if only one name is on the title?
A: Not necessarily.
When determining separate property within a marriage, it’s important to identify whether or not that property was purchased with separate funds. If community property (finances) were used to make a purchase during a marriage, then it is likely to be considered community property. Remember, finances (the means through which something is purchased) are really where community and separate property is determined.
Q: How do I know if something is community or separate property?
A: Lousiana defines community and separate property according to specific legal definitions (included here). However, it’s a good idea to seek the advice of a licensed estate planning lawyer in Louisiana to get further insight into your personal situation.
Separate property generally includes:
Property owned before marriage
Property acquired by inheritance or gift during the marriage to only one spouse
Certain damages awarded to a spouse in an action against the other spouse
Damages for separate property
Property purchased with separate funds or exchanged for separate property, such as inheritance or income earned before the marriage
Property acquired with separate things or with separate and community things when the value of the community things is insignificant compared to the value of the separate things used
Community property that is voluntarily partitioned by the spouses
Community property includes:
Property acquired during the existence of the marriage through the effort, skill, or industry of either spouse (like your paycheck)
Property acquired with community things or with the community and separate things, unless otherwise classified as separate property
Property given to the spouses jointly
Natural and civil fruits of community property (like rent or timber-cutting proceeds from community property)
Damages awarded for loss or injury to a thing belonging to the community property
And all other property not classified by law as separate property.
Q: Which documents will I likely need to create a complete estate plan?
A: It can vary from client to client, but generally, folks looking to make an estate plan can count on needing some, if not all, of the following documents:
Last will and testament
Living trust
Beneficiary designations
Financial power of attorney
Advance healthcare directive/healthcare power of attorney
Insurance policies (health, life, car, home, etc.)
Titles and property deeds (car, home, boat, rental property)
Proof of identity (social security card, prenup agreement, birth/marriage/divorce certificates, etc)
Digital logins and passwords (yes, all of them)
Funerary instructions (although I believe these should be given directly to your loved ones prior to your death.)
Take a look behind the legal curtain.
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Take a deeper dive into Lousiana estate planning with more posts by Addie Prewitt Law:
It’s important to me to make Louisiana estate planning as simple as possible.
You can create a last will and testament, sign a power of attorney, and even write down your final wishes. But, if you don’t approach your estate plan with a big picture strategy, you might just miss the mark when it comes to creating the best estate plan for you and your family.
The first step of any estate plan is knowing you have to put one in place. So, since you’re here, you’ve already done the first (and probably the most important) step.