Community Property

Rufus Enderby lives in a community property state and asks Wraymond Hale Securities to open an individual account in his sole name, to be funded with $400,000 of salary he earned during his marriage. He tells the agent that his wife need not be involved because the account will carry only his name and the money came from his own employment. What should the agent understand about this arrangement?

1. A.The account title controls, so the assets are Rufus's separate property once the account is opened in his name alone.Registration does not determine ownership. Community property character attaches to the assets independently of the account title.
2. B.Salary earned during the marriage is ordinarily community property, so his wife likely holds an interest despite the sole-name registration.Correct. Ownership is governed by state community property law, not by the name on the account.
3. C.The firm must refuse the account, because community property may be held only in a joint registration.Sole-name accounts are not prohibited. The firm applies its community property procedures rather than declining the business.
4. D.Community property rules apply only to real estate, so an account holding cash and securities is unaffected.Community property principles reach personal property, including cash and securities, not merely real estate.

Why: Titling an account in one name does not settle who owns the assets in it. In a community property state, property acquired by either spouse during the marriage, including salary earned by one of them, is generally owned equally by BOTH spouses regardless of whose name appears on the account. So Rufus's salary is very likely community property, and his wife holds an interest in it that the account title does not extinguish. The practical consequences follow from state law and can include a requirement for both spouses to consent to certain dispositions, and a claim by the surviving spouse or her estate on death. The correct response is not to refuse the account but to recognise that the ownership question is governed by state law rather than by the registration Rufus prefers, and to have the firm apply its procedures for community property jurisdictions.

Ruben and Aurelia Salcedo are married and live in a community property state. They open a joint brokerage account registered as COMMUNITY PROPERTY. Aurelia dies leaving a valid will that directs her entire estate to her nephew. What happens to the account?

1. A.The entire account passes to Ruben by right of survivorship, exactly as in a joint tenants with right of survivorship account.Wrong. Plain community property registration carries no automatic right of survivorship.
2. B.Aurelia's one-half community interest passes under her will to the nephew, and Ruben retains his own one-half interest.Correct. Each spouse owns half and may dispose of that half by will.
3. C.The entire account passes to the nephew, because a will overrides any account registration.Wrong. A will can only dispose of the decedent's own one-half interest; Ruben's half is his.
4. D.The account is frozen until a court determines the split, because community property has no defined ownership shares.Wrong. The shares are defined as one-half each, which is what makes the outcome determinable.

Why: Community property treats property acquired during a marriage as owned one-half by each spouse, but the registration carries no automatic right of survivorship. Each spouse may dispose of his or her one-half interest by will. Aurelia's one-half community interest therefore passes to her nephew under her will and through her probate estate, while Ruben retains his own one-half. Some states permit an elective community property with right of survivorship registration, but that is a distinct election and the facts do not indicate it here.

Marius lives in a community property state. During his marriage he buys a policy on his own life, pays every premium out of his salary, and names his brother sole beneficiary without telling his wife. At Marius's death his widow objects to the payment. What is the likely result?

1. A.Because the premiums were paid with community funds, the wife has a community interest, and naming a third party without her consent typically lets her claim her community share of the proceeds.Correct. Salary earned during the marriage is community property, so a policy bought with it carries a community character and the surviving spouse may recover her share.
2. B.The designation is fully effective, because a policyowner's right to name a beneficiary is absolute in every state.The right is broad but not absolute. Community property law, slayer statutes and divorce-related statutes all limit it in various circumstances.
3. C.The proceeds pass entirely to the widow, and the brother receives nothing at all.Her claim runs to her community share, not to the whole benefit. The named beneficiary ordinarily keeps the balance.
4. D.Community property principles apply only to real estate, so the policy is unaffected.Community property reaches all property acquired with community earnings during the marriage, including life insurance policies and their proceeds.

Why: In a community property state, income earned by either spouse during the marriage is community property, and so is anything bought with it. Because the premiums came from community earnings, the policy and its proceeds carry a community character, and the wife has an interest in her community share. Naming a third party without the spouse's consent typically lets the surviving spouse recover that share, with the balance going to the named beneficiary. Insurers commonly require spousal consent or acknowledgement at issue precisely to avoid this dispute.

Ysabel and Rodrigo, who live in a community property state, open a mutual fund account titled as community property using earnings accumulated during the marriage. Rodrigo asks what happens to the account when one of them dies.

1. A.The account must be liquidated and the proceeds paid to the state for distribution.Nothing escheats. The decedent share passes through the estate.
2. B.The entire account passes automatically to the surviving spouse outside probate, as in a joint tenancy with right of survivorship.That is the JTWROS result, which community property registration does not produce by itself.
3. C.Each spouse owns an undivided one-half interest, and the decedent half passes under his or her will rather than automatically to the survivor.Correct. Community property carries no automatic right of survivorship.
4. D.The account is divided according to how much each spouse actually contributed from earnings.Community property is halved regardless of which spouse earned the money.

Why: Community property gives each spouse an undivided one-half interest in property acquired during the marriage. On the death of one spouse, only that spouse one-half interest passes, and it passes under that spouse will or by intestacy rather than automatically to the survivor. That is the essential contrast with joint tenants with right of survivorship, where the decedent interest passes to the survivor outside probate by operation of the registration itself.