Dual income couples often keep their finances separate.  Separate bank accounts, separate investment accounts, separately titled cars, and almost anything else other than the homestead.  Are these separately-titled properties separate property of the respective spouses?

The hallmark rule of community property is that the character of the property (whether it is community or separate) is not determined by how the property is titled but how and when it is acquired.  The general rule is that all property acquired during the marriage is community property.  The major exception is that property received by gift or inheritance during the marriage is separate.  So, property acquired during the marriage, even if titled separately, is not separate property.  Each spouse has an equal 50% interest in all of the property acquired during the marriage, regardless of how titled.

Sometimes couples don’t want their property to be held as community property because they have different estate plans, they want a total separation of their finances, or one spouse has a greater liability risk than the other.  Property can be recharacterized by a marital property agreement (a cousin of a prenuptial agreement) that divides the property and separates it into each spouse’s own property, not held in community.  This agreement must be in writing and it is highly advisable that both spouses are separately represented by their own legal counsel.  Notes, memos, and love letters between the spouses do not equal a marital property agreement.  It is not something that can be done informally.

If a couple intends to have separate estate plans and for their property not to be comingled as community property, they need the assistance of an attorney to advise them and potentially draft a marital property agreement.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, specific tax, legal or accounting advice. We can only give specific advice upon consulting directly with you and reviewing your exact situation.