Community Property is a confusing concept to many. For Muslims, it is often considered to be contradictory to the Islamic Rules of Inheritance.
What is Community Property?
In places like California, married couples own their property as community property by default. In this system, anything you earn through your skill, labor, and effort while you are married is community property. This means which means 50% belongs to each spouse no matter who earned it. Spouses can decide if they don’t want community property. Marriage is certainly a more flexible institution than community property, and you can create an agreement to not follow that system if you don’t want to.
Is there a contradiction between the Islamic Rules of Inheritance and “Community Property?”
Not really. They deal with two different things. Community Property is how property is owned now while inheritance is what is distributed after death. This system is one expression of the “partnership theory” of marriage. The notion that spouses own what they acquire during marriage equally, and regards marriage as a specific economic partnership. If a man were to give his wife $1 million as a gift, there is nothing in Islam that would stop him. Similarly, if he wanted to give 50% of his income to his wife, there is nothing in Islam that would stop that. If however, he wanted to give his wife 50% as inheritance after he died, he could not do that, since shares of inheritance are ordained in Islam.
What are the benefits of community property?
For the most part, it is a cultural expectation that property is owned 50/50 by spouses. There are no practical non-tax benefits beyond this. There is, however, a tax code benefit in the way capital gains taxes are treated. This is called a “double step-up” in basis. This could be a major benefit for the surviving spouse. However, it is generally not a good idea to own assets (as opposed to structure them) with tax considerations in mind.
Are we obligated to follow community property?
No. Spouses can agree to what they want. They would need a marital property agreement, or what is popularly known as a “prenuptial” or “postnuptial” agreement.
Is inheritance mandatory for a “wife” in Islam that I did not legally marry?
Yes. Marriage in Islam is what controls the right to inheritance, the “legal status” of the marriage under state law is irrelevant for Islamic purposes. While community property is not created unless there is a marriage under state law, it is possible co-habitants to own their property equally if they have an agreement to do so.
My wife is a “joint and survivor” beneficiary in a retirement pension. Does this count as an inheritance?
In general, the answer is no. Joint and survivor pensions are agreements with an employer to care for a surviving spouse. It is also not real wealth in the same way as other things you own, since it is a contract with the employer to provide a particular continuing benefit.