31 Dec Think Twice Before Changing Title to Property
How spouses hold title to their home has far broader implications than the stepped up tax basis at death noted by The Consumerist. The post noted correctly that a house held in community property gets a step-up in basis on both the decedent’s half and the surviving spouse’s half of the property when one spouse dies.
The author suggests that spouses should run out and change title to their homes if they don’t hold in community property. No mention is made that only about 9 states recognize community property. Worse, the post utterly ignores other issues controlled by how title is held.
The most important, undiscussed consequence of how you hold title it that all of the community property of a couple in California is liable for the debts of either spouse. So, hold title to your largest asset as community property and the entire asset is liable for the business debts or gambling debts or premarital debts of one of the partners.
By contrast, a California home held in joint tenancy is a form of separate property, and thus only one half of the value of the home is liable for the debt of one of the spouses. Huge difference in results, yet unmentioned in the post.
The impact of holding a home in joint tenancy is magnified when you consider that one spouse can file a bankruptcy petition and only his one half of a joint tenancy title comes into the bankruptcy and that one spouse is entitled to use the entire California homestead exemption against the equity in the house. This can be critical to whether a couple can keep a home with substantial equity through a bankruptcy.
And changing title when you owe creditors or on the eve of filing bankruptcy has consequences, usually unpleasant.
The Consumerist post feeds an unfortunate tendency among the lay public who are encouraged by such posts to run out and do it themselves, falsely confident that they know the law. After all, they read it on the internet!
The law is also a web of interconnected principles; understand those interconnections before taking your legal advice from a website by consulting a lawyer before you act.
Cathy Moran, Esq.
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