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"What do you mean there is community property in Utah?" my friend, Clyde, asked in horror and disbelief. "Utah is a common law property jurisdiction and always has been, so
how can you even talk about community property here?" His arm moved in a gesture of disgust at the very thought of community property in our midst, and as his arm came around, he
knocked over the pitcher of Provo Girl beer into my lap. It was an accident - I'm sure.
We had been laughing about how Clyde had slept through some of Denny Ingram's estate
planning lectures at the University of Utah College of Law some 25 years ago. Denny was a Texas lawyer for whom community property was daily fare, and Clyde slept through that part of the
class. Real funny, but now things were getting serious. In the lull after the spill, I could hear "The Yellow Rose of Texas" conclude on the juke box.
I was,
nevertheless, in a forgiving mood and responded with the best smile I could muster as the cold fluid chilled my hinder parts: "This is America, where property rights are taken very
seriously, and where people and property move about with the greatest freedom on earth. A community property right does not simply cease to exist when persons or property cross a state
line; rather, it is constitutionally protected under, among other things, the Full Faith and Credit Clause." [Citations omitted to protect the lazy.] I could almost hear the
"Stars and Stripes Forever" playing in the background.
"Any property, real or personal, tangible or intangible, derived from earnings in a community property state
during marriage, or property traceable to property acquired with those earnings will retain their community property character. Thus, there is community property all over the state of
Utah. Yellow roses among the sego lilies, if you will."
"Yeah," said Clyde, "you just try telling that to the judges in one of our rural counties, and you'll be
'community propertied' out of town so fast it'll make your head swim!" The sneering satisfaction in Clyde's voice irked me. So did the background music which was a bland rendition of
"Achy Breaky Heart" punched up by Clyde on the jukebox, not the rousing Sousa march of my imagination.
I saw no other option, so, wet pants and all, I mounted my
intellectual high horse and let fire a few silver bullets of truth. My imagination began to play the "Lone Ranger" theme from the "William Tell Overture."
"Those judges in the border counties may be a lot more familiar with community property concepts than you give them credit for," I said. I was thinking "maybe they didn't
sleep through Denny's lectures on the matter" but, congratulating myself on my self-restraint, took a sip from my glass and said instead, "After all, Utah is a legal isthmus
surrounded on three sides by community property: Nevada through to California on the west, Idaho to the north, Arizona and New Mexico to the south. And the number of community property
states and the amount of community property are actually growing. In addition to those I just named, there are the other traditional community property states with Spanish or French
jurisprudential histories stretching back a couple of hundred years, such as Louisiana, Texas, and Washington. Wisconsin joined the group in the twentieth century by statute, other states
did the same but later dropped the system, and, believe it or not, Alaska made community property elective within the last year or so. Huge tracts of land, fast-growing populations, and
some very large economies, all on or west of the Mississippi River, and thus relatively close neighbors to Utah, are in community property jurisdictions. Also, the Hispanic population and
economic influence are increasing from immigration from and business dealings with Mexico and Central and South America. Continental Europe has long had community property systems and
with companies from a newly united European Community transferring officials, either temporarily or permanently to transact business in the States, Utahns will be seeing more community
property brought here by this group of people, too."
"It's not all that much of a concern for a Utah lawyer," said Clyde skeptically as he poured me a fresh brew. Strangely, only a few drops spilled.
"Oh, but it's very significant," I said. "Just think about some of the transactions we could have been involved in, one way or another, fairly recently - a divorce
by a Utah couple who had lived in a number of European countries, and another by a German couple who moved to Utah and brought most of their financial assets with them; a prenuptial
agreement involving a wealthy Salt Lake City bride and a poorer Seattle, Washington, groom (he was a lawyer) who were going to live in Washington and wanted to protect the wife's assets
from the husband's potential malpractice liabilities; planning estates for couples moving to sunny St. George from snowy Coeur d'Alene, Idaho; an enforcement of a Utah judgment against
property in Park City which was traceable to California community property from the Silicon Valley area; filing an estate tax return and an income tax return for a Utah estate involving
community property traceable to Scottsdale, Arizona; helping arrange a computer software business transaction for a Utah company with an individual from Lima, Peru; planning estates for
couples moving to Utah from such exotic locales as Cabo San Lucas, Mexico, Paris, France, Salzberg, Austria, and Boise, Idaho."
"Have you really been doing all that?" asked Clyde sounding like he was ready to be impressed.
"Well, some of it," I replied honestly, "but I could have been doing all of it."
"Oh, I see," said Clyde, looking at me through the corners of his eyes.
The sounds of "Achy Breaky Heart" again assailed my ears. Did Clyde have to put
another quarter in the machine? Quickly recovering my composure, I went on: "And just think of all the grand stuff you can do with community property and of all the not-so-grand
stuff it can do to you if you aren't careful. For example, community property is a fine income tax avoidance tool. Congress has seen fit to allow a step-up in basis on both halves of
community property on the death of one of the spouses. For a common law tenancy in common or joint tenancy, only the deceased spouse's half receives the step up. The remaining community
property spouse doesn't have to die to get this benefit which can eliminate capital gain for all time. Neat deal. But you have to know it when you see it to get this rise out of it."
Clyde seemed to be getting a little interested. "So what would you do to help plan for such a basis rise?" The beer on my pants was now almost body temperature.
"Well, you could nail down the evidence that it was community property and have the couple expressly agree to maintain it as community property. I've made questions about prior
places of residence a standard part of my estate planning discussions with clients.
"But with the flower come the thorns, if there are creditor problems for a couple, the
right of either member of the community to bind the entire community can mean that a creditor can seize not only the separate property of the contracting or tortfeasing spouse, and not
only his community property interest, but his wife's community interest, as well. This can be disastrous in some circumstances."
"But there's nothing to be done about that," said Clyde.
"Oh, yes, there is," said I. "In a number of community property states, spouses can by express agreement abandon the community property system. This is what we did to protect our Utah maiden from the clutches of the potential creditors of the Washington lawyer. Remember that in some of the community property states, income or increase from separate property, as well as from community property, can be community property. It is important to consider this in doing advance planning for protection from creditors. It is also important to consider if you represent a creditor, and a little research and the right questions in a deposition or in proceedings supplemental to a judgment could greatly expand the property available to recover against."
By now, it was getting late, and as we paid for our beer, Clyde muttered, "I guess I need to check into the community property thing a little bit." He even paid for the
spilt pitcher.
As we left the pub, my pants were nearly dry, and I stuck in a quarter and pushed a few buttons on the juke box. Handel's "Hallelujah Chorus," sung by my
favorite local choir, began playing. "How did that ever get into the same juke box with "'Achy Breaky Heart'?" I wondered.
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