Estate planning is a crucial process that involves making arrangements for the distribution of your assets and the protection of your loved ones after your passing. Understanding the specific considerations in common law states is essential for effective estate planning. In this guide, we will explore the definition of common law property, identify common law property states, discuss assets considered as common law property, address moving from a common law to a community property state, and explain the difference between community property and common law states.
Definition of Common Law Property
In common law states, the legal system relies on precedents and court decisions to establish rules and principles. Common law property refers to assets that are owned individually by each spouse, regardless of marital status. It means that property acquired during the marriage is generally considered separate, rather than jointly owned.
Which States are Common Law Property States
These 40 states and the District of Columbia are considered common law property states in the United States:
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District of Columbia
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Alabama
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Alaska
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Arkansas
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Colorado
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Connecticut
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Delaware
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Florida
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Georgia
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Hawaii
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Illinois
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Indiana
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Iowa
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Kansas
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Kentucky
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Maine
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Maryland
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Massachusetts
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Michigan
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Minnesota
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Mississippi
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Missouri
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Montana
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Nebraska
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New Hampshire
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New Jersey, New York
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North Carolina
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North Dakota
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Ohio
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Oklahoma
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Oregon
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Pennsylvania
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Rhode Island
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South Carolina
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South Dakota
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Tennessee
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Utah
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Vermont
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Virginia
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West Virginia
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Wyoming
Assets that are Considered Common Law Property
In common law states, assets acquired during the marriage are generally considered separate property unless they are intentionally commingled or titled jointly. Assets that are typically considered common law property include:
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Property acquired by one spouse before the marriage
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Inheritances or gifts received by one spouse during the marriage
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Income generated from separate property
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Assets purchased solely by one spouse during the marriage
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Investments or business interests held in one spouse's name
In contrast, in community property law states, assets acquired during the marriage are generally considered the property of both spouses, even if the assets are titled only in one spouse’s name.
Moving from a Common Law to Community Property State
If you move from a common law property state to a community property state, it's important to understand the implications for your estate planning. Community property states have different rules regarding the division of assets during divorce or upon death. When you move from a common law state to a community property state, each law has different rules for what happens to property that you had when you lived in a common law state. Generally, when you move from a common law state to California, Washington, Idaho or Wisconsin, the property you take with you then becomes community property according to the laws of your new state. And when a couple moves from a community property state to a common law state, the spouses will each retain their 50/50 split in all property accumulated during the marriage that the acquired while they lived in the community property state.
How Debts Are Handled in Common Law States
Debts are owned by both spouses in common law states, as long as the debt actually benefited the marriage. What does this mean? That both parties benefited in some way. So if the debt was for housing, childcare, food, or other things used by both people. Debt is also shared if it was undertaken jointly. For example, if a couple took out a joint second mortgage, or if a creditor considered the creditworthiness of both spouses when making a decision on a loan. Other debts are considered separate. So, if Spouse A has debt from his business, this is a separate debt. Likewise, if Spouse B buys a car and the title is in Spouse B’s name only, that is Spouse B’s separate debt.
Common Law Marriage v. Common Law States
It’s easy to confuse the concept of common law states with something called common law marriage. Common law marriage is a legal recognition of a marital relationship that develops without a formal marriage ceremony or a marriage license. Not all states recognize common law marriages, and the requirements for establishing one may vary. In states that do recognize common law marriage, couples must typically demonstrate that they intended to be married, cohabitated, and held themselves out as married.
This generally has nothing to do with the idea of common law states.
Prenuptial Agreements in Common Law States
Prenuptial agreements, also known as prenups or premarital agreements, are generally valid and enforceable in common law property states. Prenuptial agreements allow couples to establish their own rules regarding the division of property, spousal support, and other financial matters in the event of divorce or death. However, the specific requirements and enforceability of prenuptial agreements may vary by state. It's important to note that prenuptial agreements typically address the division of assets and financial matters, but they may not cover issues related to child custody, visitation, or child support. Family courts generally have the authority to make decisions regarding these matters based on the best interests of the child at the time of divorce or separation.
Conclusion
Estate planning in common law states requires careful consideration of the unique legal framework for the state where you live. When you draft your Will in a common law property state, it’s important to identify assets considered separate and common so that you can make informed decisions and create an effective estate plan.
