8 Things Washington Homeowners Should Know About Community Property Laws
Washington is a community property state. If you're married or in a Washington state-registered domestic partnership, that can affect much more than what happens in a divorce.
Community property laws can determine who owns your home, who has to sign when you sell it, what happens when a spouse dies, and even the taxes owed when property is eventually sold.
Here are eight things Washington homeowners should know.
1. The Name on the Deed Doesn't Necessarily Determine Who Owns the House
This surprises a lot of people.
In Washington, property acquired during marriage is generally presumed to be community property, even if only one spouse's name appears on the deed.
Imagine a couple buys a Bellingham home after getting married. One spouse earns most of the income, writes the down-payment check and is the only person listed on the deed.
That doesn't necessarily make it that spouse's separate property.
The more important questions are when the property was acquired and where the money came from.
2. Selling or Refinancing Usually Requires Both Spouses
Washington gives spouses considerable freedom to manage community property, but real estate is different.
Generally, one spouse cannot sell, convey or mortgage community real estate without the other spouse participating.
This is why marital status matters to your real estate agent, lender, escrow officer and title company, even when only one name appears on title.
My advice is simple: bring this up early.
Discovering an ownership or signature problem two days before closing is a lot harder than addressing it before the house goes on the market.
3. A House You Owned Before Marriage May Remain Separate Property
Property owned before marriage is generally separate property. The same is generally true of property received individually through an inheritance or gift.
But here's where things get interesting.
Suppose you owned a house before getting married. After marriage, community earnings pay the mortgage, fund a $150,000 remodel and pay for other major improvements.
Twenty years later, determining exactly what is separate and what claims the marital community may have can become considerably more complicated.
Good records matter.
If you're trying to preserve a separate-property interest, keep closing documents, inheritance records, bank statements and documentation showing where money for major improvements came from.
4. Community Property Doesn't Mean Divorce Is Automatically 50/50
Another common misconception is that Washington courts simply divide everything down the middle.
They don't.
Washington courts divide property and liabilities in a manner that is “just and equitable.” Courts can consider community property, separate property, the length of the marriage, each spouse's financial circumstances and other factors.
With a house, that could mean selling and dividing the proceeds. It could also mean one spouse keeps the house while the other receives cash, retirement assets or other property.
Community property is important, but it isn't a giant calculator that automatically divides every asset in half.
5. Rental and Investment Properties Count Too
Community property laws aren't limited to your primary residence.
A rental house, duplex, vacation property, vacant land or commercial property acquired during marriage may also be community property.
This can become particularly interesting when separate and community money are mixed.
For example, one spouse might use a $150,000 inheritance as the down payment on a rental property, then the couple uses marital income to make mortgage payments and improvements for the next 15 years.
That's exactly the kind of situation where documentation and professional advice become important.
6. When One Spouse Dies, the Survivor Already Owns Half
This is an important distinction.
If a home is community property, the surviving spouse generally already owns a one-half interest. The deceased spouse's half is the portion controlled by the deceased spouse's estate plan or, without a will, Washington's intestacy laws.
If someone dies without a will and leaves a surviving spouse, Washington law generally gives the surviving spouse the deceased spouse's share of the net community estate.
But don't translate that into “the spouse always gets everything.”
Separate property follows different rules. A will can matter. Trusts can matter. Community Property Agreements can matter. And things can become especially complicated in second marriages and blended families.
I wrote a separate article explaining what happens to community property when a spouse dies in Washington because this topic deserves more than a paragraph.
7. Community Property Can Create a Significant Tax Benefit at Death
This may be the most financially valuable part of Washington community property law that many homeowners have never heard about.
When one spouse dies, qualifying community property may receive an adjustment in tax basis to fair market value on both spouses' halves of the property, not merely the deceased spouse's half.
Consider a couple who bought a rental property for $400,000 that is worth $1 million when one spouse dies.
If the property qualifies, the surviving spouse could potentially have a new tax basis near $1 million. If the property is sold soon afterward for approximately that amount, the taxable capital gain could be dramatically reduced.
For highly appreciated real estate, that can be an enormous benefit.
Tax treatment depends on the specific circumstances, so this is absolutely an area to discuss with a qualified CPA or estate-planning attorney.
8. A Community Property Agreement Can Make Things Easier, But It Isn't for Everyone
Washington allows married couples and registered domestic partners to create a Community Property Agreement, commonly called a CPA.
Among other things, a properly prepared CPA can provide for community property to pass to the surviving spouse when the first spouse dies. In the right situation, that can make transferring ownership substantially easier and may avoid the need for probate for assets covered by the agreement.
But a CPA isn't automatically the right solution.
Blended families, children from previous relationships, significant separate property, trusts and different wishes about inheritance can all make the planning more complicated.
Think of a Community Property Agreement as an estate-planning tool, not an estate plan by itself.
The Bottom Line
Here's the big takeaway:
The deed matters, but it doesn't always tell the whole ownership story.
When a property was purchased, where the money came from, whether the owners were married, how title changed over the years and what estate-planning documents exist can all affect ownership.
Most homeowners will never have a community property dispute. But when these issues do surface, they tend to appear at important moments: a sale, refinance, divorce or death.
Those are lousy times to discover a problem that could have been addressed years earlier.
If you're dealing with the sale of a Bellingham or Whatcom County property involving an estate, probate, trust or surviving spouse, I'm happy to spend 15 minutes with you looking at the real estate side of the situation and helping you identify the next steps.
This article provides general Washington real estate information and is not legal or tax advice. Property classification can depend on the specific facts and documents involved. Consult a qualified Washington attorney or tax professional regarding your individual circumstances.
