Gray areas of community property law

By Steve Tytler Hereald Columnist

Question: Years ago, my in-laws gave my husband a house that really needed a lot of work to make it livable. We have spent thousands of dollars fixing the place up.

The warranty deed to the house is in my husband’s name only. My question is, does this house now become community property, or is it still solely my husband’s property? What are my rights in this situation?

Answer: The community property system of ownership is based on the theory that all property acquired during a marriage through the labor and earnings of one or both spouses should be shared equally by the marital partners.

However, property owned by one spouse prior to the marriage, or acquired during the marriage by inheritance or gift, remains “separate” property that is free from all claims by the other spouse.

But your situation gets into one of the gray areas of community property law. Based on your description, the house was definitely separate property when your husband acquired it because it was a gift from his parents.

However, it becomes more complicated because community funds have gone into the repair and upgrading of the property. That means you have probably acquired a “right of contribution,” which would give you a community property interest in the house.

If your husband ever decides to sell the house, you should be entitled to at least a reimbursement of your share of the fix-up costs and probably a share of the sale profits equal to the percentage of your contribution.

If you are uncomfortable about the house being in your husband’s name only, he could simply sign a quit claim deed giving you an interest in the house. Of course, that assumes that your husband wants to treat the house as community property.

You did not indicate if the house is being used as a rental property or as your primary residence. If your husband prefers to maintain the house as his “sole and separate property,” it is easier to do that as a rental property.

In that case, he would establish a separate bank account for the rental income generated by the house and only his separate funds in that account could be used to maintain, repair and upgrade the rental house. If no community funds were ever used for the house, you would not obtain a community property interest in the property.

On the other hand, if the house is your primary residence, you will acquire an equitable interest in the property if your income helps maintain, repair and upgrade the property, and I don’t think there is any way for your husband to maintain it as his sole and separate property in that case.

Often, married couples hold title to property as “joint tenants with rights of survivorship.” That means that if one spouse dies, the surviving spouse automatically owns 100 percent of the property. But if your husband does not want to give you a full ownership interest in the property, it is possible to hold title to the property as “tenants in common” with unequal shares of ownership.

For example, your husband could use a quit claim deed to give you a 20 percent ownership interest in the property, while maintaining 80 percent ownership for himself, or any other combination that he desires.

Those are some options for you to discuss with your husband. Hopefully you can reach an amicable agreement on the ownership issues. Once you make a decision, consult an attorney or escrow company to make sure the deed and all required paperwork is prepared properly and filed correctly to protect your ownership interest in the property.

You may also want to talk to an accountant about possible tax implications of a property title transfer.

Steve Tytler is a licensed real estate broker and owner of Best Mortgage. You can email him at features@heraldnet.com.