Community Property and Taxes: What You Need to Know

For married couples in community property states like California, how income and assets are classified can have a major impact on your taxes, estate planning, and even capital gains. Whether you’re a YouTuber, Shopify store owner, dentist, Amazon business, or high net worth individual, understanding community property rules helps you avoid surprises — and plan smarter.

What Is Community Property?

In community property states, most income and assets acquired during the marriage belong equally to both spouses, regardless of who earned the income or whose name is on the title.

This means:

• If one spouse earns $100,000 from a YouTube channel or dental practice, both spouses are considered to own half.
• If you buy real estate during the marriage, it generally belongs to both of you equally, even if only one spouse’s name is on the deed.

By contrast, separate property generally includes:

• Assets acquired before marriage
• Inheritances or gifts given only to one spouse
• Earnings and accumulations after a legal or factual separation (depending on state law)

When Does Community Property End?

Community property doesn’t last forever. It can end under several circumstances:

1. Death of a Spouse

When one spouse passes away, the community property ends. The deceased spouse’s share is distributed based on their will, trust, or state intestacy laws.

💡 Example: A client in Los Angeles owns a medical practice with community property status. When the doctor passes away, their share is transferred through their estate plan, while the surviving spouse keeps their half.

2. Divorce or Separation

Community property usually ends when a divorce is finalized, but the timing depends on state law:

• California: Community property ends when spouses separate with no intent to reunite — even before a divorce decree is filed.
• Texas: Community continues until a divorce is finalized, regardless of whether spouses live apart.

💡 Example: A client in California separates from their spouse in July but doesn’t file for divorce until December. Because of California Family Code Section 771, income from the Shopify store after July may be treated as separate property.

3. Legal Separation or Post-Nuptial Agreement

Spouses can end community property rights through a legal separation or a valid written agreement.

💡 Example: A couple running an Amazon business agrees in writing that future income will be treated as separate property. This protects one spouse from liabilities if the Amazon store later faces debt or legal claims.

4. Annulment

If a marriage is annulled, it’s treated as if it never legally existed. That means community property status also disappears.

5. Moving Between States

Some states have adopted the Uniform Disposition of Community Property Rights at Death Act to address what happens when couples move from a community property state to a non-community property state. The treatment varies, which makes tax planning essential for high-net-worth individuals.

Why This Matters for Taxes

Community property rules directly affect:

• Income Splitting: Both spouses must report half of the community income on their tax returns, even if one spouse earned all of it.
• Capital Gains: The basis for property may be adjusted differently depending on community or separate property status.
• Estate Planning: The step-up in basis at death can significantly impact capital gains taxes for surviving spouses.
• Tax Liability Protection: In cases of debt, separation, or liability concerns, knowing when income becomes separate can protect one spouse’s finances.

💡 Example: A CPA for filmmakers client invests heavily in equipment. If they separate from their spouse mid-year, California law could treat any income earned after the separation date as their separate property, simplifying liability issues in a divorce.

The California Standard: Date of Separation

In California, the date of separation is critical. Community property ends when:

1. One spouse expresses intent to end the marriage, and
2. Their actions are consistent with that intent.

This doesn’t require a court filing — it can be based on conduct alone.

💡 Example: A client moves out, tells their spouse the marriage is over, and begins living independently. From that date, any new dental practice income may be considered separate property.

Key Takeaways

• Community property = shared ownership of income and assets acquired during marriage.
• It typically ends at death, divorce, separation, annulment, or through legal agreements.
• Rules vary by state — California often ends community property at the date of separation, while Texas requires a finalized divorce.
• The classification of property can have major consequences for tax liability, estate planning, and capital gains.

How We Can Help

At Velin & Associates, Inc., we help clients navigate community property issues with confidence. Whether you’re a:

• YouTuber or TikToker managing brand deals
• Shopify store or Amazon business owner handling e-commerce income
• Dentist or doctor balancing professional practice income
• High net worth individual with multi-state assets

…our team can help you structure income, minimize tax liabilities, and protect your financial future.

For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org