The term “common law property” relates to how property obtained during a marriage is determined. According to the common law system, each spouse is an individual with sole ownership of some assets. Common law property is commonly distinguished from community property, which has different ownership constraints.
Let’s find out about common law property, how it works, and which states use it.
Where Does the Common Law Property System Apply?
The common law property system applies in all states, except for the following:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
According to the common law system, property acquired by one member of a married couple is owned entirely and solely by that person. Under this legal system, if both spouses’ names are on the title or deed of the property, then it belongs to both spouses. If the names of both spouses appear on the title, each owns one-half of the property.
The nine states mentioned above have community property laws. Any assets obtained during a marriage are typically considered the property of both spouses in a community property state. It treats debt in the same way — what you earn, save, and spend during the marriage is usually irrevocably tied to the other person.
For example, if a couple in a community property state buys a house during their marriage, they have an equal claim to the property. In contrast, under common law, each spouse has sole ownership of any assets they bring into the marriage or that they acquire during the marriage unless stated otherwise in a title or other legal document.
How Does Common-Law Property Work?
Under common law, one spouse’s property is considered a spouse’s separate property. It means that the other spouse does not have a legal claim to the property. Thus, each spouse can do what they want with their property without getting permission from their spouse.
Separate property can include assets acquired before the marriage, gifts received during the marriage, or inheritances. The exception to exclusive ownership is when both spouses’ names appear on the ownership documentation.
For example, if John Doe marries Jane Smith and lives in a state with common law property rules, then any property John owned before the marriage (such as a house or car) would remain his separate property. Similarly, if Jane received a gift from her parents during the marriage, that gift would also be considered her separate property.
What Are the Types of Common Law Property?
Physical assets, earnings, and debt are the types of common law property.
- Physical Assets: Physical assets are anything that can be touched, including real estate, vehicles, furniture, jewelry, and collectibles. Whoever’s name is listed as the owner, for example, on a house or automobile title, is considered the sole owner of that property. In the absence of any documentation, the spouses may be regarded as joint owners.
- Earnings: All money earned during the marriage is considered common law property, regardless of which spouse earned it. It includes wages, salaries, tips, bonuses, commissions, and self-employment income.
- Debt: Any accumulated debt incurred during the marriage is also considered common law property. It includes credit card debt, student loans, mortgages, and car loans.
How Does Common-Law Property Classify?
Common law property is classified as either separate property or marital property.
- Separate Property: Separate property is any property owned by one spouse before the marriage or inherited by one spouse during the marriage. It does not matter if both spouses use the separate property during the marriage – it remains the owner spouse’s separate property.
- Marital Property: Any property obtained by a couple during their marriage is considered marital property. It could be their primary residence, an investment property, a vehicle, furniture, artwork, jewelry, or any other valuable asset. Securities, retirement accounts, bank accounts, and pensions are all examples of financial assets considered marital property.
For example, if John and Jane Doe own a house together, then the house would be considered marital property. However, if John owns the house and Jane owns the car, the house would be considered John’s separate property, and the car would be considered Jane’s separate property.
Does Common Law Property Determine the Ownership of Marital Property?
No, common law property does not determine the ownership of marital property. Instead, each spouse has a vested interest in all marital property under common law. It means that each spouse is legally entitled to a share of the marital property if the marriage ends in divorce.
For example, if John and Jane Doe own a house together and get divorced, then under common law, each spouse would be entitled to half of the house’s value.