Separate vs. Community Property

Elliott Burdette breaks down the differences between separate and community property. He also discusses how a prenuptial agreement can be used to simplify the distribution of shared property between a husband and a wife.

Transcription:

Prospective Client: I have a question about community property – what is it exactly?

Burdette: Community property is a system we have in Texas, and in California and a few other western states, that says if you’re married – for divorce and for death purposes – that whatever you own is presumed to be owned by both of you. Even if it’s just in one person’s name, people mistakenly think if it’s only in one person’s name, “I own it – others have nothing to do with it.” Well, it’s true that person can make decisions about the property during the marriage, but for death or divorce purposes (here we are focused on death purposes), the property is presumed to be community unless the person can show that someone had it before the date of marriage, or that during the marriage the person received it from a gift or inheritance. Otherwise, it will be considered to be community property.

Prospective Client: I have an Aunt in her 70’s and she met a man and they’re engaged – and they both have had previous marriages. They have their own Wills and their own kids. But someone told them about doing a pre-nup and that seems crazy to me.

Burdette: Well, maybe it’s because you think they’re in their seventies, and when you think of pre-nups you think divorce. But here it’s important for them because that while they’re married, if they have their own separate investment accounts, one could be at Charles Schwab, and one could be at Merrill Lynch, they’re going to get dividend and interest income from their investments. In Texas, while the investment accounts are separate property, the income you get from separate property is community property. And then they re-invest that into their other separate property and it starts to get mixed up. The longer they live, the more it gets mixed up, until it gets to be commingled and becomes an accounting nightmare and expensive to sort it all though. It can get to a point where it gets mixed and it becomes community property and when the first one dies, their kids have to sort it all out and if one side has more than the other, the other side’s family could claim a portion of that estate. It will become all that they don’t want to have happen. So a simple prenuptial agreement, depending on their circumstances, that says that income from separate property will remain separate property can go a long way to solve that type of problem for the people that you are describing. This can’t be considered to be legal advice to them because I don’t know their situation, but I’m answering this generally.

Prospective Client: Basically, a pre-nup just simplifies things. It doesn’t have to be some huge document?

Burdette: Well, sometime it takes more than a page or two, but it depends on how extensive people want to go with it. One that says separate property will remain separate property doesn’t have to be that long, but a lawyer does need to prepare it.