Community Property Agreements
Washington has a property division contract that is available only to married couples. It is called a community property agreement, and it's commonly used to avoid probate. Here’s how it works.
The community property agreement basically throws all the assets owned by the spouses - either jointly or separately - into one big jointly owned pot. The standard agreement usually states that all current property that is owned by both spouses, including separate property assets brought to the marriage, are jointly owned, and that all property acquired in the future will also be jointly owned. A community property agreement may also be effective either immediately or at the death of the first spouse. Either way, upon death all the property is transferred to the surviving spouse.
There are several advantages to having a community property agreement. At the death of the first spouse, a community property agreement can prevent surviving family members from arguing over the rightful ownership of the property of the estate. Community property agreements also allow for the quick transfer of assets to a surviving spouse without probate proceedings.
As you can imagine, a plain vanilla community property agreement can mean trouble in some marriages. What if the couple marries late in life, and both have children from a prior relationship? The average community property agreement will leave everything to the surviving spouse, disinheriting the children. This may not be the intent, and will also result in a bunch of mad kids.
Here’s another troubling scenario. Let’s say the wife comes into the marriage with a $2,000,000.00 inheritance, while the husband comes into the marriage with a 1969 Dodge Dart and a jar of crunchy peanut butter. They sign a run-of-the-mill community property agreement they download off the internet because they don’t want to hassle with a bloodsucking attorney. Two years later, the husband runs off with the video rental girl, and claims one-half of the marital estate including $1,000,000.00 of the inheritance. After all, the community property agreement says that he owns one-half of the assets. Yikes.
Because of concerns such as these, a community property agreement must be carefully thought out and tailored to each specific circumstance. Should it be effective immediately, or at the death of the first spouse? Should some property be specifically excluded from the agreement? Should the agreement include all property, including separate property brought into the marriage, or only property acquired after the marriage?
A few other things about community property agreements. Remember, only married couples can enter a community property agreement under Washington law. While parties in a domestic partnership can address property division in a separate property agreement, this helps to clarify the ownership of property but does nothing to avoid probate. Also, a properly drafted and executed community property agreement needs to be signed by both parties, as well as notarized. One spouse alone can’t revoke a community property agreement; since it is a contract, both parties are needed for an effective revocation. In other words, once it has been signed you can’t back out, so treat it like you would any other contract and be careful. Further, while the community property agreement can avoid probate at the death of the first spouse, at the death of the second spouse, a probate is needed. The same goes for property intentionally left out of a community property agreement, such as an inheritance; the inheritance or any other property left out of a community property agreement will need to be probated at the death of the first spouse and should be addressed in a will. A community property agreement also controls over inconsistent provisions in a will - in other words, if your will leaves your marital assets to some third party (we won’t even ask why) while those same marital assets are also addressed in a community property agreement, the community property agreement controls and the will beneficiary is out of luck. The same goes for joint tenancies and pension plan beneficiary designations. In other words, in the kingdom of estate planning documents, the community property agreement is king.
All this means that if you are considering a community property agreement as an estate planning tool, it should be tailored to your circumstances by a good attorney. Things can get complicated real fast, and what you don’t know can hurt you a lot. Don’t try to go it alone.
If you are considering a community property agreement as an estate planning tool, please contact us.