J. Mark Weiss, Community Property Interests in Separate Property Businesses in Washington, 40 Gonz. L. Rev. 205 (2005).[PDF] [Westlaw] [LexisNexis]
Many of the rules of Washington community property law are well established. However, Washington law is not so clear when a spouse works during marriage in his or her separate property business. The spouse’s labor is community property, yet the business is separate property. Generally speaking, income generated during marriage from the labor of a spouse is community property. Property brought into the marriage or received as a gift, including inheritance, is separate property. The difficulty arises upon death or dissolution of marriage, when the task becomes determining what constitutes community and separate property. While Washington law establishes that the business may have started out as separate property, Washington courts have failed to provide a cohesive analysis of the effect of years of community labor on the business.
The often-recited Washington rule is that so long as the owner-spouse is adequately compensated, a separate property business retains its separate character and all income generated by the business, and any increase in value of that business, is separate property. However, if the owner-spouse is undercompensated, then the business and its income become community property. Because the business is either entirely separate or entirely community property, this rule is sometimes referred to as the “all-or-nothing” rule….Read More