Separate Property, Community Property, and Commingling

Nine states^$†$ — California, Texas, Washington, and six others — are community property states; the rest follow common-law (equitable-distribution) rules. Which set governs you is determined by domicile, and it changes when you move. A couple that builds a portfolio in a common-law state and retires to California has just walked their assets into a different rulebook.

The baseline rule is simple. Property owned before the marriage, plus anything either spouse receives during the marriage by gift or inheritance, is separate property. Everything earned by either spouse’s labor during the marriage is community (or marital) property. The simplicity ends at commingling. The moment separate property is mixed with community property so that the two can no longer be traced, the entire pool is presumed community. Deposit a $200,000 inheritance into the joint checking account that the household paychecks flow through, use it for a few mortgage payments, and you have very likely converted half of it into your spouse’s property — not through malice, but through a deposit slip.

The discipline that prevents this is unromantic but cheap:

• Keep pre-marital assets and inheritances in accounts titled in your name alone, and never route a community-money paycheck through them.
• Do not use community funds to improve separate property or pay down its debt. Renovating your premarital house with joint savings hands the community a claim on the appreciation.
• Document the trail. The burden of proof falls on whoever later claims an asset is separate; account statements are that proof.

None of this is romantic. Neither is the alternative conversation, conducted under oath in a deposition. For the federal treatment of community property, see IRS Pub. 555, “Community Property”.