Navigating Community Property and Common Law: Estate Planning Considerations When You Move States

Married couples in the United States may live in either community property states or common law (separate property) states. The distinction affects how your property is owned, how it is divided upon death or divorce, and how it is taxed at transfer. With remote work and post‑pandemic relocation trends, more families are crossing state lines than ever before, making it critical to understand how property regimes impact your estate plan. This guide explains the key differences, outlines tax and inheritance implications, and offers practical steps to protect your assets when you move.

Understanding Community Property vs. Common Law

Community Property States

In community property states, most assets and income acquired during marriage belong equally to both spouses. Each spouse owns an undivided one‑half interest in the community property, regardless of who earned the income or whose name is on the title. As of 2025, nine states follow mandatory community property rules: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska allows couples to opt into community property status by agreement.

Separate property in community property jurisdictions includes assets owned before marriage, inheritances, gifts received individually, and sometimes personal injury awards. With careful recordkeeping and proper segregation of accounts, separate property remains separate; however, commingling funds or using separate property to pay community expenses can convert it to community property.

Common Law (Separate Property) States

In common law jurisdictions, property is typically owned by the individual whose name is on the title. Earnings during marriage belong to the spouse who earned them, unless assets are deliberately titled jointly. Upon divorce or death, property division follows state statutes, prenuptial agreements, or testamentary documents. Nearly all U.S. states outside the community property list follow common law rules.

How the Property Regime Affects Estate Planning

Control and Disposition at Death

• Community Property: Each spouse may only dispose of their one‑half interest in the community property at death. The surviving spouse automatically retains their half. Separate property can be left to anyone by will or trust. If one spouse leaves more than their share of community assets in a will, the surviving spouse may assert their community property rights to reclaim their half.

• Common Law: Each spouse can dispose of their individually owned property, but many states have “elective share” or “spousal share” laws that prevent disinheriting a spouse entirely. The surviving spouse can claim a statutory percentage of the estate, regardless of the will’s instructions.

Step‑Up in Basis

A significant tax advantage of community property is the double step‑up in basis. When the first spouse dies, the entire community property (both halves) receives a new tax basis equal to the fair market value at that date. In common law states, only the deceased spouse’s share of jointly owned property receives a step‑up; the survivor’s share retains its original basis.

A higher basis lowers capital gains tax when the surviving spouse sells the asset. For example, if a couple bought a home for $300,000 and it is worth $800,000 when the first spouse dies, a community property step‑up resets the basis of the entire house to $800,000. The survivor can sell without paying tax on the $500,000 of gain. In a common law state, only the decedent’s half (originally $150,000) steps up to $400,000, leaving the survivor with a basis of $550,000 and potential tax on $250,000 of gain if sold.

Creditor Protection

Community property is generally subject to debts incurred during the marriage by either spouse. In common law states, creditors of one spouse may reach assets titled in that spouse’s name, but not the other spouse’s separate property (with exceptions for jointly held assets). These differences may inform how you title property and manage liability risk.

Divorce and Property Division

While this article focuses on estate planning, property regime differences also affect divorce. Community property states typically divide community assets equally; common law states use equitable distribution, which may or may not be a 50/50 split. Prenuptial or postnuptial agreements can override default rules in both regimes and ensure clarity.

Moving Between Community and Common Law States

Relocating can change how future acquisitions are treated. Here are key points:

• Property classification remains: Assets acquired in a community property state generally retain their community character even after moving to a separate property state (often called quasi‑community property). Conversely, separate property acquired in a common law state remains separate when moving to a community property state.

• Future acquisitions follow local law: Property and income earned after the move are classified under the new state’s rules. Couples moving from a common law to a community property state must decide whether to accept community property rules or keep new property separate through a marital property agreement.

• Tax implications: Retaining community property status can secure the double step‑up in basis. However, if you convert community assets to joint tenancy or another form of ownership in a common law state, you may lose the benefit. Conversely, couples moving from a community property state might want to keep separate property truly separate to avoid creditor reach in a new state.

• Documentation is critical: Maintain detailed records showing when and where assets were acquired, how they were titled, and whether they were inherited or gifted. Clear documentation supports your intentions and helps avoid classification disputes.

Estate Planning Strategies for Different Regimes

In Community Property States

1. Use Community Property Agreements: Some states (e.g., Washington) allow spouses to sign a community property agreement that designates all assets (existing and future) as community property and passes them directly to the surviving spouse without probate. Such agreements can streamline administration but must be drafted carefully.

2. Establish a Revocable Living Trust: Holding community and separate property in a joint revocable trust can simplify management, avoid probate, and clarify distribution. The trust can separate community and separate assets internally, making the step‑up tracking easier.

3. Separate Property Trusts: To protect inheritances or business interests, consider placing separate property into individual trusts. This isolates assets from community debts and ensures they are distributed according to your wishes.

4. Plan for Taxes: If your estate exceeds federal or state estate tax thresholds, work with advisors to incorporate strategies like gift planning, life insurance trusts, or charitable trusts while maintaining community property benefits.

In Common Law States

1. Joint Tenancy vs. Tenants in Common: Decide how to title joint assets. Joint tenancy with rights of survivorship passes directly to the surviving spouse outside of probate but only receives a half step‑up in basis. Tenants in common ownership allows each spouse to pass their share separately and can provide flexibility but requires probate or trust administration.

2. Elective Share Considerations: Understand your state’s spousal share laws when drafting your will or trust. If you intend to leave most assets to someone else, a prenuptial or postnuptial agreement may be necessary to waive the elective share.

3. Use Trusts for Control and Privacy: Revocable trusts are valuable for avoiding probate, maintaining privacy, and managing property across state lines. They also allow you to set conditions on distributions.

4. Protect Separate Property: Keep inherited or pre‑marriage assets clearly separate. Avoid commingling accounts or using separate funds to pay joint expenses unless you intend to convert them to marital property.

Moving Couples: Key Steps

1. Consult local professionals: Engage attorneys licensed in both your current and new states to evaluate property classification and tax consequences.

2. Consider a marital property agreement: Depending on your goals, you may adopt or waive community property rules. Agreements can preserve community status (and tax advantages) or ensure assets remain separate.

3. Retitle assets thoughtfully: Retitling can inadvertently convert property. For example, changing a community property asset to joint tenancy may undermine the double step‑up. Always seek advice before retitling.

4. Update estate documents: Wills, trusts and powers of attorney should reflect your new state’s laws. They may need adjustments to comply with local formalities or to address changed spousal rights.

5. Review beneficiary designations: Update retirement accounts, life insurance, and payable‑on‑death accounts to align with your new plan. Keep in mind the differences in community vs separate property classification.

6. Track community property: If you retain community property after moving to a common law state, maintain clear records of its character. Some states treat quasi‑community property the same as community property for divorce or death, so proper documentation is crucial.

Frequently Asked Questions

Q: If my spouse and I move from a common law state to a community property state, does everything we own become community property?

A: No. Property acquired before the move remains separate property unless you intentionally convert it through an agreement or commingling. Income and property acquired after the move are subject to the new state’s community property rules unless you opt out via a marital agreement.

Q: What happens if we own homes in both types of states?

A: The classification depends on where you reside and where the property is located. A house in a community property state purchased during marriage is likely community property, while a home purchased in a common law state might be considered separate if titled to one spouse. Use trusts or agreements to clarify ownership and plan for tax advantages.

Q: Do unmarried couples need to worry about community property laws?

A: Community property rules typically apply only to married spouses or registered domestic partners (in states like California). Unmarried partners must rely on cohabitation agreements and appropriate titling to ensure property rights.

Q: What is the simplest way to handle a move from a community property state to a common law state?

A: Communicate your goals with professionals, keep accurate records, and consider drafting a marital property agreement stating which assets remain community property. Using trusts can also maintain privacy and streamline administration.

Conclusion

Community property and common law regimes are foundational to how marital assets are owned and passed to heirs. Moving between these systems can have significant tax, legal and planning implications. By understanding the differences, documenting the character of your assets, and updating your estate plan accordingly, you can protect your wealth and ensure that your estate is distributed according to your wishes. Always consult experienced estate planning and tax professionals who understand the nuances of both systems to tailor a plan that fits your personal circumstances.