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The Advantage Of Marital Property When Couples Change Domicile

Robert J. Schwab

December 15, 2014

Wisconsin adopted a marital property system for ownership of property by married couples in 1986. Wisconsin’s marital property system is treated the same as community property for federal tax purposes. Wisconsin is one of only nine states that uses a community property system (a “community property state”). Generally, in a community state, assets acquired by either spouse during marriage are presumed to be community property owned equally by both spouses unless the spouses have entered into an agreement to classify the property as the individual property of one of the spouses.

Upon the death of the first spouse to die in a community property state, the community property assets of the married couple will obtain a new income tax basis under Section 1014(b)(6) of the Internal Revenue Code equal to the fair market value of the community property assets on the date of death of the decedent spouse. This is a major tax advantage of the community property system over the common law system of property ownership in which only the decedent spouse’s interest in the assets of the married couple would obtain a new income tax basis upon the death of the first spouse to die.

Community property interests of spouses are determined by the law of the domicile when they are acquired. The Uniform Disposition of Community Property Rights Act (the “Uniform Law”) has been adopted by many common law states, including Alaska, Arkansas, Colorado, Florida and Hawaii, to allow a married couple changing domicile to their new state from a community property state to continue to own the community property assets they bring to their new state as community property. In states which have adopted the Uniform Law, personal property and real property in the state purchased by the couple with community property they brought into the new state will be community property.

A commonly used estate plan for a married couple in Wisconsin will include a pour‑over Will for each spouse and a joint revocable trust. Funding the trust with marital property during lifetime will preserve the assets as community property if the couple changes domicile to a state which has adopted the Uniform Law.

If you have any questions about how the information in this article may affect you or your business, please contact Bob Schwab at rschwab@stroudlaw.com or (608) 257‑2281 or your Stroud attorney.


DISCLAIMER:  The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice. This article is not intended to create, nor does the receipt of it constitute, an attorney‑client relationship. You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.