A Community Property Agreement is Magical

Want to make things simple when you die?  Then listen up. If you are married, you can simplify things with a community property agreement. It’s like a will, but better.  

First, let’s get a few things straight. Community property is an asset that belongs to both spouses, in which each spouse has an undivided and equal interest.  

The interest is “undivided” meaning that each spouse’s interest in community property is over the whole, not a specific piece.        

In Washington state, whether an asset is “community” depends on how and when it is acquired, and how it is maintained. Wages earned before marriage are “separate.” Wages earned after marriage are a “community” asset. Dividends traceable from a separate asset are separate property. Dividends traceable to a community asset are community property. (Other community property states differ in how they treat proceeds of separate property.)

Gifts and inheritances are always considered separate property.

If a separate asset is improved (or co-mingled) with community assets, then it can become a community asset.  So, for those married people who want to keep things separate, Washington’s community property laws can be an obstacle. To keep things separate, it is imperative to avoid co-mingling. A that spells out a couple’s intentions can also help.  

But oh blessed is community property when one spouse dies – and the couple had a community property agreement in place.     

A typical community property agreement says three things. It says that property that was separate is now community. It says that future acquired property will be community property (don’t worry, it can be revoked). And it says that all property will be transferred to the surviving spouse upon the first spouse’s death.  

So, when one spouse dies without a community property agreement, a court appointed executor (usually named in a will) would need to sign a deed in order for the surviving spouse to “clear” title to real property, and of course, banks will not change title to accounts without court authority.  

But, with a community property agreement, the surviving spouse may re-title assets in his or her name without having to go to court. Banks and insurance companies – at least those who know the law in Washington – will happily re-title an account or pay over insurance proceeds when they receive a death certificate and community property agreement.   

Community property agreements are not for everybody. Folks on their second marriage are well advised to keep things separate to ensure that children from a former marriage cannot be disinherited by a later spouse.  

And for the very wealthy, a community property agreement may avoid probate, but sometimes a probate is necessary in order to preserve certain state and federal estate tax exemptions.

But for the rest of us, this simple document can be magic.