Although most people have heard the term “community property,” many people are unaware of what it means and how it affects them. Most of the United States have marriage and inheritance laws based on English law, with the exception
of Louisiana, which is based on French law, and eight states, including California, where our laws come from our Spanish heritage.
Under English law, historically wives were protected in case of divorce or their husband’s death by certain laws such as the right of dowry and the giving of alimony. Under Spanish law, both husband and wife are considered to have
contributed their efforts to better the family, creating a “community.”
The result of this is that all assets earned during the marriage, or purchased with those earnings, are community property, owned equally.
For estate planning purposes, it is important to be aware that there are two different types of property in a marriage. “Separate property” is property that is either brought to the marriage, or acquired by gift or inheritance.
Many of my clients are concerned that when they make gifts to their children, or give assets to their children upon their death, that the assets could be taken away in a child’s divorce. Often a child will automatically add the spouse’s name when inheriting an asset. This makes it difficult to identify the inheritance.
One way I am helping clients protect their children is to leave a child’s inheritance in trust. In this way, the child can have control, and yet it is easy to identify that the asset is an inheritance, which is clearly separate property. This protects the child in case of divorce, while making the inheritance available for his or her enjoyment. If the child truly wishes to make a gift of the property to his or her spouse, it can be achieved. However, it is a decision made thoughtfully, with an awareness of the consequences, rather than a casual action which could have serious consequences.
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