The Louisiana Community Property Laws directly affect a married person’s ability to buy, sell, or control their property. According to these laws, the term “property” could encompass most of the assets a person could own, including but not limited to, homes, land, financial accounts, pensions, and wages.
Under Louisiana law property owned by a married person is considered community property. Unless a person’s property is specifically classified as separate property, it will be assumed to be community property.
Without a prenuptial agreement, the majority of assets acquired during a marriage are considered to be community property. Below are specific guidelines determining what is, in fact, community property.
All property acquired during the marriage through the effort, skill, or industry of either spouse.
Property acquired using community property or with both community property and separate property (unless the value of the separate property used to acquire the asset far exceeds the value of the community property used).
Property given to the spouses jointly.
Any proceeds earned using community property.
Any damages awarded for loss or injury to part of the established community property.
All property not classified by law to be considered separate property.
Separate property is the property that exclusively belongs to one of the two spouses. Louisiana law states that any assets acquired by a married person while previously unmarried, or acquired during the marriage by gift, are considered separate property. Below are specific guidelines determining what is, in fact, considered separate property.
Property acquired by either spouse prior to the marriage.
Assets acquired by a spouse using separate property, or both separate property and community property when the value of the separate property used to acquire the asset far exceeds the value of the community property used.
Property that is acquired by one spouse by way of inheritance or donation to them individually.
Damages that have been awarded to a spouse in an action for breach of contract against another spouse or for the loss sustained as a result of fraud or bad faith in the management of community property by the other spouse.
Damages or indemnity awarded to a spouse related to the management of that spouse’s established separate property.
Assets that are acquired by a spouse as a result of a voluntary partition of the community during the existence of the community regime.
When determining if a particular asset is a community or separate property, it does not matter which way an asset is titled. What determines this is the source of the funds used to purchase the asset. If the asset was purchased using community funds, it is deemed community property even if only one spouse’s name is on the title.
Each qualified retirement plan or IRA that was acquired during the marriage might be considered community property. At the time of divorce, each spouse may have a community property interest in the qualified retirement plan or IRA, regardless if the spouse contributed to that plan or not.
Most qualified retirement plans are governed by ERISA. The U.S. Supreme Court decision in Boggs vs. Boggs, 117 S. Ct. 1754 (1997) held that ERISA overrides Louisiana community property law.
Because of federal override of Louisiana law, a non-participant spouse cannot leave their community property interest in a qualified retirement account to anyone. The account is treated as separate property belonging to the participant spouse alone. At the time of the non-participant spouse’s death, the account goes to the surviving (participant) spouse, as if there were never a community property interest.
Since ERISA guidelines do not apply to IRAs, The U.S. Supreme Court’s decision on Boggs vs. Boggs does not apply to the IRA (although this has not been fully settled). If the surviving spouse is the designated beneficiary stated in the IRA, the entirety of the IRA will be given to the surviving spouse.
Note: It is important to know the difference between the federal tax consequences of an IRA and the community property rights under Louisiana law. Regardless of how the asset is distributed under Louisiana law, community property laws do not apply to IRAs for federal tax purposes. IRC § 408(g). However, this area of law has not been completely settled.
It is important to know that a Judgment of Possession comes at the end of succession in Louisiana. It is not a standalone document that can easily be prepared by a succession attorney; it is an order that needs to be signed by a judge stating that all necessary steps have been taken to put the heirs or legatees in possession of a deceased person’s property.
Clients often misunderstand or have been misinformed that a Judgment of Possession must be required before any assets can be transferred. Some clients will question attorneys, wanting to know how long it will take to prepare a Judgment of Possession, not realizing that it’s only one document signed by a judge, but is part of a larger succession proceeding.
The Judgment of Possession should at a minimum:
• Identify all parties that are rightfully entitled to the decedent’s assets.
• Grant the proper parties possession of the assets.
• Recognize the surviving spouse as an entitled party to possess an undivided on-half of all community property and possess a usufruct over the remaining half of the community property.
Although is it not required, a Louisiana succession attorney will most often include a legal description of all real estate that is covered by the Judgment of Possession. This helps creates a clear chain of title in the land records and can prevent problems when the property is later sold or mortgaged.
