Community Property vs. Common Law States
How your state's marital property system fundamentally affects estate planning, asset protection, and tax treatment.
The Two Systems
The United States has two fundamentally different approaches to marital property. 12 states use community property law (assets acquired during marriage are owned equally by both spouses), while 39 states follow common law (separate property) principles where each spouse owns what they earn or receive individually.
This distinction isn't just academic — it directly affects how assets pass through your estate, how they're taxed, and what planning strategies are available to you.
Community Property States
In community property states, most assets acquired during marriage belong equally to both spouses, regardless of who earned the income. This means:
- Automatic 50/50 split. Each spouse owns half of all community property. At death, you can only bequeath your half.
- Full step-up in basis. When one spouse dies, BOTH halves of community property receive a stepped-up tax basis — a significant capital gains advantage over common law states.
- Simplified division. Community property is clearly defined, which can simplify estate administration.
- Separate property exists. Assets owned before marriage, inheritances, and gifts remain separate property — but commingling can convert them.
State property regimes
| Regime | States | Estate impact |
|---|---|---|
| Community property (9 states) | CA, TX, AZ, NV, ID, LA, NM, WA, WI | Double basis step-up |
| Optional community (5 states) | AK, FL, KY, SD, TN | Election-based |
| Common-law (rest) | 36 states | Half basis step-up |
Where you live can change your tax bill by tens of thousands of dollars — even with identical assets.
Common Law (Separate Property) States
In common law states, property belongs to whoever earned or acquired it. This affects estate planning differently:
- Individual ownership. Each spouse owns their own earnings and can dispose of them freely in their estate plan.
- Elective share protection. Most common law states protect surviving spouses with an "elective share" — typically 1/3 of the estate — that the surviving spouse can claim regardless of the will.
- Only deceased's half gets step-up. In common law states, only the deceased spouse's share of jointly-owned property receives a stepped-up basis — potentially doubling capital gains compared to community property states.
- Title matters. How property is titled (individual, joint tenants, tenants in common) determines ownership and estate treatment.
Tax Implications
The double step-up in basis available in community property states is one of the most significant tax advantages in estate planning. Example:
- A couple buys a home for $200,000 in 1990. It's worth $800,000 when one spouse dies.
- Community property: Both halves get stepped up. New basis = $800,000. Surviving spouse sells — $0 capital gains.
- Common law: Only the deceased's half gets stepped up. New basis = $500,000 ($200K/2 + $400K). Surviving spouse sells — $300,000 capital gains.
This difference alone can save tens of thousands of dollars in taxes.
Opt-In Community Property
Several common law states now allow couples to opt into community property through special trusts:
- Alaska (1998) — Community Property Trust Act
- South Dakota — Community Property Trust statute
- Tennessee — Community Property Trust Act (2010)
These trusts let couples in common law states access the double step-up benefit without moving.
Estate Planning Differences by State
View estate tax and probate details for each state: