Community Property Law: Same-Sex Couples' Entitlement

In the United States, nine states have community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, any income or property acquired by either spouse during a marriage is considered community property and therefore belongs to both partners equally. This also means that both spouses are equally responsible for debts incurred during the marriage.

In 2015, the Supreme Court ruled in Obergefell v. Hodges that same-sex couples have a fundamental right to marry under the Fourteenth Amendment. This ruling meant that all states must issue marriage licenses and grant divorces to same-sex couples in the same way that they do for heterosexual couples. As a result, same-sex married couples in community property states now receive the same protections as heterosexual couples under community property laws.

Community property laws in Arizona

Arizona is one of the minority of states that follows community property rules. This means that all property acquired by either spouse during the marriage is considered to be jointly owned and will be divided approximately equally in the event of a divorce. However, there is also the concept of "separate property", which is generally what a spouse owned before the marriage or acquired by gift or inheritance during the marriage.

In Arizona, all assets and debts a couple acquires during marriage belong equally to both spouses. However, unlike some community property states, Arizona does not require the division of marital property in divorce to be exactly equal, but it must be fair and will usually be approximately equal.

There are multiple factors that affect whether property is considered separate and thus exempt from division upon divorce. These include:

• Real estate owned by one spouse before marriage or inherited individually during the marriage
• Inherited wealth, which belongs to the individual recipient unless deposited into a joint bank account
• Retirement accounts, where funds accrued before marriage are individual property, and funds added after marriage are generally community property
• Joint property acquired before marriage, where each spouse has a claim to a proportionate share
• Legal settlements, where funds awarded for lost wages are considered community property, but damages for pain and suffering may qualify as separate property

In addition, prenuptial and postnuptial agreements can override community property law by instructing how certain categories of assets and debts will be divided upon divorce.

Community property rights for same-sex couples in California

In California, same-sex couples are subject to the same community property laws as heterosexual couples. This means that there is a presumption that any property acquired during the marriage is community property and therefore owned equally by both spouses. This includes money earned by either spouse during the marriage, things bought with that money, and property that was separate but has since become so mixed with community property that it can no longer be identified as separate.

However, it is important to note that this only applies to same-sex couples who are legally married or in a registered domestic partnership. For same-sex couples who are not legally married, the rules are different. In this case, the property is not automatically considered community property, and a "community property agreement" must be signed in order for the property to be designated as such.

California law defines four types of ownership interests in real property by multiple persons: joint interests, partnership interests, interests in common, and community interests of married couples. Joint interests, also known as joint tenancies, are owned by two or more people in undivided equal shares and have a right of survivorship. Interests in common, also known as tenancy in common, are created by default when several persons acquire the property but do not expressly declare it as joint interest. Community interests, also known as community property, apply to property acquired after marriage or after becoming a registered domestic partnership.

It is important for same-sex couples in California to understand their rights and responsibilities concerning community property, especially in the event of a divorce or death of a spouse. Seeking legal advice from an estate planning attorney can help ensure that property is correctly titled and that the rights of both spouses are protected.

The 2015 Obergefell v. Hodges ruling

In 2013, James Obergefell and John Arthur, a same-sex couple legally married in Maryland, filed a lawsuit against the state of Ohio for refusing to recognise their marriage on Arthur's death certificate. Arthur suffered from a terminal illness and passed away several months after litigation began. The plaintiffs believed that, under Ohio law, state officials would refuse to indicate Arthur was married at the time of his death and that Obergefell was his spouse.

The case, Obergefell v. Hodges, was first heard in the United States District Court for the Southern District of Ohio, where Judge Timothy S. Black granted a temporary restraining order requiring the state to recognise the marriage on Arthur's death certificate. The plaintiffs later added two additional plaintiffs, David Michener and Robert Grunn, to the case. Michener had also married his same-sex partner in 2013, and his spouse had passed away nearly a month later. Grunn, a licensed funeral director, operated his business in Cincinnati and feared prosecution for making false statements on a death certificate if he were to classify a legally married same-sex couple as wedded spouses.

In the amended complaint, the plaintiffs sought a declaration from the court that Ohio's practice of denying recognition of same-sex marriages lawfully performed in other states on death certificates is unconstitutional and requested an injunction to stop this practice. On December 23, 2013, Judge Black held that Ohio's refusal to recognise same-sex marriages performed in other states violated the substantive due process and equal protection rights of the parties to those marriages. The case was then appealed to the Sixth Circuit Court of Appeals, which reversed the decision.

On January 16, 2015, the U.S. Supreme Court issued an order agreeing to hear the case, consolidating it with other Sixth Circuit cases challenging same-sex marriage restrictions. The case was heard on April 28, 2015, and on June 26, 2015, the Supreme Court ruled in a landmark decision that the Fourteenth Amendment requires all states to license marriages between same-sex couples and to recognise all marriages that were lawfully performed out of state.

The Supreme Court's ruling in Obergefell v. Hodges had significant implications for same-sex divorce, as it required all states to issue marriage licenses and grant divorces to same-sex couples in the same way that they do to opposite-sex couples. Prior to the ruling, it was difficult for couples married in one state to obtain divorces in states that did not recognise same-sex marriage, even though most states do not have a residency requirement to get married. While the grounds for divorce and residency requirements differ from state to state, the ruling ensured that same-sex couples would have the same rights to divorce as opposite-sex couples.

Community property and estate planning

In 2015, the Supreme Court ruled in Obergefell v. Hodges that same-sex couples have a fundamental right to marry under the Due Process and Equal Protection Clauses of the Fourteenth Amendment. This ruling also had implications for same-sex divorce, with all states now required to issue marriage licenses and grant divorces to same-sex couples in the same way they do for heterosexual couples.

With the legalization of same-sex marriage, community property laws now apply to same-sex married couples in community property states. Community property includes money earned by either spouse during the marriage, things bought with that money, separate property that has become so mixed ("commingled") with community property that it can't be identified as separate, and separate property that has been transferred or "transmuted" into community property. In community property states, this is generally presumed to be owned equally by both spouses, and both spouses are also presumed to be equally responsible for debts incurred during the marriage.

Community property laws have a significant impact on estate planning for same-sex married couples. Here are some key considerations:

• Unlimited Marital Deduction: Federal law allows spouses to give an unlimited amount of assets by gift or inheritance to a spouse, deferring federal estate taxes until the death of the second spouse. This unlimited marital deduction only applies when both spouses are U.S. citizens. For non-citizen spouses, a Qualified Domestic Trust (QDOT) can be used to defer federal estate taxes.
• Qualified Terminable Interest Property (QTIP) Trust: A QTIP trust allows a deceased spouse to create a trust that grants a life estate for the surviving spouse without incurring federal estate taxes. The trust is then included in the surviving spouse's estate for tax purposes but is distributed according to the wishes of the first spouse.
• Spousal Rollovers: Same-sex spouses can now take advantage of spousal rollover benefits for beneficiary designations on retirement accounts such as IRAs and 401(k)s. A surviving spouse can roll over a deceased spouse's IRA into their own, deferring taxable withdrawals until they reach retirement age.
• Estate Tax Exemptions: Married same-sex couples can shield a higher amount of assets from federal estate taxes compared to unmarried individuals. For 2019, the federal estate tax exemption was $11.4 million per individual, resulting in a combined exemption of $22.8 million for married couples.
• Portability: A surviving spouse can make a portability election on the federal estate tax return of the deceased spouse, allowing them to combine their estate tax exemptions. This can help the couple avoid or defer estate taxes on their combined assets.
• Marital Trusts: Married couples with large estates, especially those with accumulated family wealth from only one spouse, may consider a marital trust. This provides financial security for the surviving spouse while ensuring the legacy remains within the family after the surviving spouse's death.
• Gift Splitting: Married couples can combine their gifts and treat them as made one-half by each spouse, even if the gifts come from the separate assets of one spouse.
• Social Security and Mortgage Benefits: A surviving spouse may receive a higher social security benefit and avoid the payoff or refinance of a mortgage on a residence owned solely by the deceased spouse.
• Health Care and Financial Powers of Attorney: Same-sex couples should consider creating health care directives and financial powers of attorney to ensure that their partner has the legal authority to make medical and financial decisions on their behalf if they become incapacitated.
• Final Arrangements: Same-sex couples can make final arrangements documents specifying their wishes regarding headstones, burial markers, and payment for final arrangements. While not legally binding, these documents can provide clarity and peace of mind for the surviving partner.

Community property debts

In community property states, debts acquired during the marriage are generally considered community property. This means that both spouses are equally responsible for debts incurred by either of them during the marriage, even if only one spouse signed for the debt. This includes debts acquired for family necessities like food, shelter, or tuition for children.

However, there are some exceptions to this rule. For example, separate property that was owned by one spouse before the marriage or acquired by one spouse through gifts or inheritances during the marriage is typically not considered community property and, therefore, not subject to equal responsibility. Additionally, after a legal separation or divorce, only the spouse who incurred the debt is responsible for it unless it falls under the category of family necessities or was incurred to maintain jointly owned assets.

It is important to note that community property laws can vary slightly from state to state. Same-sex married couples are entitled to the same protections under community property laws as heterosexual couples following the 2015 Supreme Court ruling in Obergefell v. Hodges, which established the fundamental right of same-sex couples to marry.

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