A Community Property Rule That Confuses Many Louisiana Residents

Presumption of Community Property. Things a spouse has during the marriage are presumed to be community property, but either spouse may prove that they are separate property.

Fruits and Revenues of Separate Property.The natural and civil fruits of the separate property of a spouse, minerals produced from or attributable to a separate asset, and bonuses, delay rentals, royalties and shut-in payments arising from mineral leases are community property. For example, dividends produced by stock are community property even though the stock is the separate property of a spouse. Also, interest on savings accounts and certificates of deposit are community property even though the funds in those accounts are the separate property of a spouse.

A spouse, however, may sign a proper declaration reserving the fruits and revenues as his or her separate property. As to fruits and revenues from real estate owned as separate property by a spouse, this declaration is effective when a copy is provided to the other spouse and the declaration is recorded in the conveyance records of the parish where the real estate is located. As to fruits and revenues of other assets such as stock or cash owned as separate property by a spouse, the declaration is effective when a copy of the declaration is provided to the other spouse and the declaration is recorded in the parish in which the person signing the declaration is domiciled.

Unintentional Conversion from Separate Property to Community Property. Example. Jack and Jill are married. It is the second marriage for each of them. On the day they married, Jill had an investment account in her name that consisted of $500,000 worth of stocks, bonds, and cash. Her intent was that, at her death, this account would go to her three children from her first marriage. During the 15 years that she was married to Jack, the assets in the account produced a significant amount of interest and dividends. Also during her marriage to Jack, she made some deposits and took some withdrawals from this account. When Jack died 15 years after their marriage, Jill’s account was valued at $850,000. Jack’s heirs (his children) argued that this investment was community property (and one-half of the account should be in Jack’s estate) since:

The fruits and revenues (interest and dividends) are community property; and

When community property and separate property get commingled so it is impossible to determine which assets are separate and which assets are community, then all assets become community.

Since Jack’s Last Will and Testament left his entire estate to his two children from his first marriage, Jill may be forced to give one-half of her account to Jack’s two children. Jill could have avoided this problem by signing and recording a Declaration reserving the fruits and revenues from her separate property as her separate property. She could also have avoided these problems by entering into a matrimonial agreement with Jack prior to their marriage.

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Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450