Community Property - What it means to you! Asset Protection of Community Property

September 5, 2004
By Michael Joseph

The first thing that you should know is whether or not you live in a community property state or not. The Following states are community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If you live in one of these states then the rule of community property applies to you if not then no need to worry about it. If you live in a community property state you'll be subject to somewhat different rules for spousal liability (and relief from spousal liability). Knowing this can determine the course of action concerning community property and asset protection.

If it does then you might be wondering what it means and what it entails, well it means community property states treat marital income differently than other states (which are sometimes called common law states). As a result, the tax law has special rules for community income. The IRS Restructuring and Revision Act of 1998 revised the treatment of spousal liability, and include rules for community property states.

Some or all income earned by one spouse may be community income in these states. As a general rule, that means the tax rules will treat this income as if each spouse earned half of it. If you and your spouse file separate returns, each of you has to report half of the community income.

In addition, you would report half of the income produced by any property that's treated as community property (for example, savings bonds that are purchased with community income). You would also report the entire amount of any income you have that's treated as your separate income under the laws of your state.

As you can see this can be a problem for those of us that do not understand tax laws and rules, when in doubt contact a lawyer or asset protection group for help.