With mortgage rates easing and the spring home-buying season about to begin, you may be contemplating an out-of-state move. Before you buy a home, we strongly advise you to understand your new state’s property rules, as they can be dramatically different in other parts of the country with respect to holding, selling, encumbering and disposing of an asset.

Separate vs Community vs Opt-in Community property states 

In the majority of states, the rules are fairly simple: Titling dictates ownership. If one spouse owns an asset in their own name, then they have the exclusive power to sell the asset, borrow against it, pledge it as collateral and dispose of it under the terms of her will.

By contrast, in community property states each spouse can act with respect to all property owned by the “community” (of two); this includes selling or encumbering the property. There may be an exception if there is a superseding marital agreement, or if the property was gifted or inherited. By extension, the marital community is generally responsible for debts incurred by either spouse, and creditors of either spouse can satisfy a valid claim from any community property. 

Last, some separate property states allow married residents to transfer property ownership to a community property trust, thereby giving couples the benefits – and burdens – of community property ownership.

Next steps

Married couples who move from community property states to separate property states – and vice versa – should speak with their professional advisors to gain a full understanding of which assets are separately owned and which are community property.

To oversimplify: Once assets are community property, they generally stay as such, even if the couple moves to a separate property state – unless the couple takes affirmative steps to transmute the property into separate property.

Conversely, property owned by a married couple relocating from a separate property state to a community property state will acquire the status of quasi-community property (basically the same thing as community property) – unless the couple affirmatively takes steps to have those assets treated as being held in some other way.

In all cases, a clear knowledge of how a married couple’s assets are owned is essential to the proper management of their wealth. Everyone – especially those who have ever relocated from one type of state to another – should check to make sure their expectations with respect to ownership are being met.

Rick Barragan is the Managing Director, Los Angeles Market Manager, for
J.P. Morgan Private Bank.

[email protected] | (310) 860-3658

privatebank.jpmorgan.com/los-angeles

Source: J.P. Morgan Private Bank Insights, April 15, 2024. “Relocating? Your new state’s property rules may surprise you” By Jordan Sprechman, Practice Lead, U.S. Wealth Advisory, J.P. Morgan Private Bank.