Louisiana Community Property Law | How to Determine Community Property in Louisiana

Louisiana law regulates a married person’s ability to buy, sell, or otherwise control their property through a system of community property laws.  In this context, “property” is defined broadly to include most assets that a person could own. Property includes homes, land, financial accounts, stock, pensions, wages).  All of these assets could be affected by the marriage relationship.

What is Community Property Under Louisiana Law?

The default rule is that property owned by a married person is community property.  Unless the property is specifically classified as separate property, it will be considered community property.

Absent a prenuptial agreement, most assets acquired during the marriage are considered to be community property. Community property specifically includes:

  • All property acquired during the marriage under the community property laws through the effort, skill, or industry of either spouse;
  • Property acquired with community property or with a mix of community and separate property (unless the value of the community property used to acquire the asset is inconsequential in comparison with the value of the separate property used);
  • Property given to the spouses jointly;
  • The proceeds from of community property;
  • Damages awarded for loss or injury to part of the community property; and
  • All other property not classified by law as separate property.

Separate property is property belongs exclusively to one of two spouses.  Under Louisiana law, assets acquired by a deceased person while unmarried, or acquired during the marriage by gift, is considered to be separate property. Separate property specifically includes:

  • Property acquired by a spouse prior to the before marriage under the community property regime;
  • Assets acquired by a spouse with separate property or with a mix of community and separate property when the value of the community property used to acquire the asset is inconsequential in comparison with the value of the separate property used;
  • Property acquired by a spouse by inheritance or donation to him individually;
  • Damages awarded to a spouse in an action for breach of contract against the other 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 other indemnity awarded to a spouse in connection with the management of his separate property; and
  • Assets acquired by a spouse as a result of a voluntary partition of the community during the existence of the community regime.

The way an asset is titled does not usually matter in determining whether it is separate or community property. Instead, you must look to the source of the funds used to purchase the asset.  If the asset was purchased with community funds, it is usually community property even if it is only titled in one spouse’s name.

Louisiana’s intestate laws treat community property differently from separate property.

Treatment of Retirement Assets under Louisiana Community Property Law

Under the usual community property rules, each qualified retirement plan or IRA that was acquired during the marriage would be treated as community property under Louisiana law.  These rules still apply in the divorce context.  Upon divorce, each spouse has a community property interest in the qualified retirement plan or IRA, regardless of whether that spouse contributed to the plan.

The rules can be tricky in the succession context, depending on whether the deceased person was a participant or non-participant spouse and whether the plan is subject to ERISA (most retirement plans) or an IRA, which is not subject to ERISA.

Note:  A participant spouse is the spouse for whom or by whom the retirement account is established. For example, for a qualified retirement account, the participant spouse would be the employee for whom the account is established. A non-participant spouse is the spouse of the plan participant.

Treatment of Qualified Retirement Plans as Community Property

Most types of qualified retirement plans are governed by ERISA.  The United States Supreme Court decision in Boggs vs. Boggs, 117 S. Ct. 1754 (1997) held that ERISA preempts Louisiana community property law.

If the succession involves the estate of the participant spouse, the rules are clear:  the account will pass to the designated beneficiary, without regard to the non-participant spouse’s community property interest. The deceased person’s will is irrelevant; the beneficiary designation will control.

The more difficult situation arises when the non-participant spouse attempts to leave his or her community interest in a qualified retirement plan to someone other than the participant spouse.  This could occur by Last Will and Testament or through operation of Louisiana’s intestate laws.

Because of the Federal preemption of Louisiana law, a non-participant spouse cannot leave his or her community property interest in a qualified retirement account to anyone.  The account is treated as belonging to the participant spouse alone.  Upon the non-participant’s spouse’s death, the account passes to the surviving (participant) spouse, as though there was never a community property interest.

Treatment of IRAs as Community Property

Because ERISA does not apply to IRAs, the Supreme Court’s decision in Boggs probably does not apply in the IRA context (although this is not fully settled).  If the surviving spouse is the designated beneficiary of the IRA, the entire IRA (both halves of the community property interest) should pass to the surviving spouse.

If the plan is an IRA and if the beneficiary is someone other than the surviving spouse, the deceased spouse’s estate may owe an accounting to the surviving spouse to equalize the community property interest.  Succession of McVay v. McVay, 476 So. 2d 1070 (La. App. 3d Cir. 1985).  An accounting would not be required if the surviving spouse is the IRA beneficiary.

Note: It is important to distinguish between the federal tax consequences of an IRA and the community property rights under Louisiana law.  No matter how the asset is distributed under Louisiana law, community property laws do not apply to IRAs for federal tax purposes.  IRC § 408(g).  The entire IRA is included in the deceased owner’s estate for estate tax purposes.

This area of law is not completely settled.  For planning purposes, uncertainty can be avoided if both spouses name the other spouse as beneficiary of any qualified plans and IRAs.