In your line of work, do you have questions that just come up over and over again? Well I sure do and one of the questions that comes up most around the old conference table is: “Why the heck do we need a Community Property Agreement when we live in Washington and Washington is a community property state?” Such a good question and so often asked with the sarcasm that only comes from a client thinking that they know more about the law than the attorney they just hired to help them. But I digress. Community property is one of the most commonly misunderstood topics and so I thought I would break it down here.
1. Washington is a community property state, what does that mean? Essentially, Washington’s identification as a community property state means that in Washington, if you are married, there is a presumption that anything that you earn during the marriage is “community property”. Notice the word “earn.” The presumption of community property does not extend to any assets you owned prior to marriage, nor does it include gifts or inheritances that you receive during marriage, those items are presumed to be your separate property. However, if you take assets that are presumed separate property and “commingle” them with your community assets so that they lose their separate character, then you may have inadvertently transformed them into community property. Now this is a very basic statement of the law in Washington, so understand that the topic can be much more complicated and nuanced, but this is it in a nutshell.
2. What is Community Property? When something is owned between spouses as community property, it means that asset is owned in 50/50 undivided shares by both spouses. Neither spouse controls the whole asset. Conversely, separate property is owned 100% by the one spouse and not jointly by both.
3. What happens to community property when one spouse dies? Here’s where things start to get complicated because there are three main possible scenarios that could apply: (a) Deceased Spouse has no will, (b) Deceased Spouse has a will; and/or (c) Deceased Spouse has a community property agreement. The answer is different in each scenario.
First, if there is no will or community property agreement and one spouse dies, RCW 11.04.015 states how the estate will pass. Basically, 100% of the community property and a portion of the separate property (depending on if the deceased spouse has children or other heirs). However, a probate will most likely be necessary to transfer everything over to the surviving spouse, even if most everything was community property if there is real estate or more than $100,000 of assets in Deceased Spouse’s estate.
In the second scenario where Deceased Spouse has a will, Deceased Spouse can leave his or her half of the community property to whomever he or she wishes (but only his or her half) and the same goes for separate property. Here again though, if real estate or more than $100,000 of financial assets are part of Deceased Spouse’s estate, it is likely that a probate will need to be opened to transfer assets to the surviving spouse and/or other beneficiaries. Most people do not know this and assume that no probate is ever necessary when there is a surviving spouse. This is tough news to break to clients who are already going through the worst time.
In the event that a spouse dies but the spouses had a community property agreement between them, it means that (if the estate is not taxable and there aren’t other legal considerations we need to worry about) we can record the community property agreement in every county in which the spouses own real estate and the Agreement will serve to memorialize that everything belonging to Deceased Spouse should pass to Surviving Spouse. No probate is necessary under this scenario. See why you may want to have a community property agreement?
Now it’s important to emphatically emphasize (like what I did there?) that community property agreements (like all estate planning tools) are not right for every person or situation. But if you are married and your estate is not estate- taxable it is something that you should discuss with your attorney to find out if it would be a good fit for you.
As always, I love answering questions, so ask away if you have any. This article does not constitute legal advice and is meant to provide basic level information about a very commonly misunderstood topic that every married person in Washington actually needs to know about.
