What happens to marital property when spouses move states

Acquisition history comes first

IRS guidance generally looks to real property's location and, for personal property, the spouses' domicile when acquired. If their domiciles differed, the guidance looks to the state with the most significant relationship to the spouses and property.

Courts may apply community property principles to real property in a common law state in an action solely between spouses if community funds purchased it.

Read this IRS guidance with applicable state law. It does not establish nationwide preservation at death.

Gather a property history

For a discussion with counsel, gather these records for each asset:

• Acquisition records and your marriage status when the asset was acquired.
• Each spouse's domicile at acquisition.
• Records identifying premarital ownership, separate gifts or inheritances, and purchases with separate or mixed funds.
• Statements showing later withdrawals, deposits and payments.
• Any agreement intended to convert community property to separate property.

Publication 555 describes these general acquisition categories, including the separate funded part of a mixed purchase and conversion by an agreement valid under state law. Governing state exceptions still matter.

Follow the funds

IRS tracing guidance allocates withdrawals, deposits and payments between separate and community funds. The burden usually rests on the person rebutting a state law community property presumption.

Mixing community and separate real property rarely converts the entire property under that guidance. State law controls the result.

Florida preservation at death

In Florida, the preservation statute covers specified property acquired by a married person for disposition at death.

Covered personal property, wherever located, includes property acquired as, or that became and remained, community property elsewhere. Coverage also includes property acquired with its rents, issues, income or proceeds, in exchange for it, or traceable to it.

Personal property held as tenants by the entirety is excluded. Florida real property must satisfy the statutory derivation or tracing test, and entireties and homestead property are excluded.

For covered property at death, half belongs to the surviving spouse outside the decedent's probate estate and testamentary disposition or succession. The other half belongs to the decedent's probate estate and is excluded from the elective estate.

Rights may be waived by written contract, agreement or waiver. This guide does not address waiver validity or execution formalities.

Reinvestment of covered property in Florida real property that is or becomes entireties or homestead property conclusively presumes termination of the reinvested property's community attribute. Other states differ.

Two related terms

Community property: Publication 555 generally describes property acquired during marriage while both spouses are domiciled in a community property state as community property, subject to governing state exceptions.

Tracing: A way to distinguish community funds from separate funds using transaction records under IRS guidance. State law controls the result.

An Investor Advantage perspective

A speaker describes the experience of helping clients navigate different systems, a useful perspective to bring to a conversation about a move.

"our focus is always started from the defense perspective. taxes, asset protection, estate planning. That always drove everything. But really, over time, what's what what's happened for us is that we've become the converter between various systems."

Common questions