Despite [some] admitted shortcomings of Community Property Divisions, they can be a fantastic asset protection tool for those who currently have no significant debts or creditors, and have a strong and lasting relationship.
In any marriage, and in any relationship, there is going to be a question of what’s “his stuff,” “her stuff” and “our stuff.” Question: how can you protect those assets that are not owned solely by you or solely by your spouse, but rather by the two of you as “community property?”
Community property is a unique form of ownership between spouses in only nine states (AZ, CA, ID, LA, NV, NM, TX, WA, and WI).. A recent article in Forbes titled “Community Property and Creditor-Debtor Law Explained” provides a nice overview of the asset protection features of community property.
The article is not only informative, but is also replete with color-coded charts. Basically, whenever an asset falls into the category of “our stuff,” a community property couple should consider a community property division. As a result, each spouse will own his or her separate property, plus one-half of what was community property before the division. From an asset protection perspective, doing so may reduce the couple’s potential risk to creditors and litigation.
However, there are a number of difficulties that can arise with this kind of planning. After all, you are dividing assets long before any potential divorce or any estate property shift. In other words, asset protection is a particular attitude with which to approach planning more generally, and community property divisions have to be understood in that context.
Reference: Forbes (May 20, 2012) “Community Property and Creditor-Debtor Law Explained”