Understanding Community Property

As you may have noticed, the entire reason this new IRS tax filing procedure for registered domestic partners and same sex married couples came about is because of the principle of community property.  In a nutshell, community property means that what’s yours is mine, and what’s mine is yours, share and share alike.  In order to determine what community is and what is separate, it is best to seek legal advice to explain your specific situation.  That said, here are a few key points:

  • Any income that is earned during the period that you are in the partnership or married becomes community. 
  • Separate property is generally property acquired prior to being married or becoming registered as domestic partners.  Separate property value increases during the partnership or marriage is community property.  What that means is that if you owned a home prior to becoming registered as a domestic partnership.  When you registered, the value was $250,000.  Seven years later, you sold the home for $400,000.  The $150,000 in gains would be considered community property.
  • Income from separate property is separate, but once it is comingled with community income, or is spent on items, it becomes community.   Stock dividends or capital gains could fall in this category, as it does not qualify as “earned income”.
  • IRA contributions and distributions are generally considered separate property.
  • Income from pensions will be considered separate or community, largely depending on the timing of the funding.  If it was funded entirely when you were married or in a domestic partnership, then it would likely be considered community.
  • Social Security income is generally considered separate, but there is debate on this.
  • Gifts or inheritances are generally considered separate property.
  • Any property can be identified as separate, if added to a separate property agreement, and conversely, and separate property can be converted to community via an agreement.
  • IRS Publication 555 has a lot more details on this subject, especially as it relates to taxes.