Most everyone, at one time or another, has heard the expression "community property." Far fewer persons know just what it means. We do not live in a community property state. Mostly the community property states are in the west – Arizona, New Mexico, California, Idaho, Louisiana, Texas, Washington and Wisconsin. Puerto Rico, while not a state, allows property to be owned as community property.
So just what is community property? It’s a method of joint ownership of property. Let’s suppose Harry, being young and energetic, saves some money and buys himself a house. Later he meets Susan, and they marry. (Note: People marry each other, they don’t “get” married.) Harry and Susan want a little larger place, so Harry buys a bigger house in his own name, and they move in. Susan’s father, being ill, transfers his house to Susan, again only in her name, because he’s not wild about Harry. Who owns what?
In a community property state, anything acquired prior to marriage belongs to that person, so the house Harry bought as a bachelor is his. However, anything bought during the marriage belongs equally to each spouse, regardless of how it’s titled.
So Susan acquired a one-half interest in the house Harry bought for them, even though her name is not on the deed.
As to the property her father left her, Susan is the sole owner. Community property applies to most property acquired during marriage,
but not to property acquired before marriage and not to property acquired by gift or inheritance.
Of greater interest is the fact that the spouses are deemed to have earned one-half of each other’s income.
Following World War II, taxes increased substantially, partially because of the war, and partially because of the debt from the Great Depression. Enter the community property rule.
A married couple with only one wage earner could file two separate income tax returns, each for only one-half of the wage earner’s salary, which resulted in a lower overall tax rate, giving couples in community property states a favorable tax advantage.
Pennsylvania, not to be outdone, became a community property state in 1947, by
act of the Legislature, which became effective on Sept. 1, 1947. Less than three months later, the Pennsylvania Supreme Court held the new law to be unconstitutional and invalid.
To correct this imbalance between the inhabitants of community property states and the rest of us, Congress revamped the Revenue Act of 1948.
It was fun while it lasted.
Thomas Young, a graduate of Pitt and Harvard Law School, has been a lawyer in Johnstown since 1958. He is a former professor of business law at Pitt-Johnstown. Readers may send questions to Young in care of The Tribune-Democrat. The opinions expressed in this column are general in nature and may not apply to your situation. Consult your attorney for advice on specific legal matters.