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.
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:
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:
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.
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.
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.
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.