Opinion: Two State Representatives Propose ‘Community Property’ Law
By: Reps. Dan McGuire and Kelleigh Domaingue Murphy
Rep. Kelleigh Domaingue Murphy
Rep. Dan McGuire
We are the co-sponsors of legislation recently filed in the New Hampshire House of Representatives that seeks to adopt the Uniform Marital Property Act (UMPA) as law in New Hampshire. In essence, this law would recognize marital or “community property” in marriages and would enable New Hampshire to join the ranks of other community property states, such as California, Texas and Wisconsin. This legislation would create greater flexibility in probate and asset transfer transactions, help surviving spouses obtain federal tax advantages, and reduce contentious property division during divorce.
UMPA has six components. First, property acquired during marriage is shared, while property brought into marriage or acquired by gift or inheritance stays separate.
Second, management rights can differ from ownership in that management and control of shared property is determined by the form of title. The property manager may not impair ownership by neglect or by, for example, excessive gifting.
Additionally, couples have complete freedom to contract, with respect to property matters via a “marital property agreement.”
Unless modified by agreement, any property that would have been marital – had the act been in effect when the property was acquired – is reclassified as marital property when the marriage terminates by divorce or death.
In addition, premarital creditors may only reach assets that would have been available had there been no marriage. Other creditors may reach both, but a couple must agree on significant debt obligations.
Finally, bona fide purchasers of property for value are protected in their transactions with spouses through reliance on the manner in which property is held.
If New Hampshire adopts UMPA as law, the current concept of equitable asset division in divorce would be both enhanced and clarified, because marital property would be recognized as such. All property acquired during a marriage would be jointly owned, but property acquired prior to marriage or by gift or inheritance would be separate (unless otherwise agreed upon in writing). A divorce would return separate property and divide the community property 50-50. With a more clear-cut framework for asset division, we believe parties would be incentivized to mediate, rather than engage in protracted litigation (which, as practitioners know, places a financial and staffing burden on the courts).
When a spouse inherits community property, the entire value of the property sees a step-up in basis, for federal tax purposes, to the property’s current value. For example, Mr. and Mrs. Jones invested $10,000 in Apple stock in 2004, buying 400 shares. In 2013, Mr. Jones dies, and Mrs. Jones decides to sell the stock, which is now worth $200,000.
If the Joneses live in a community property state, the basis of the full 400 shares is stepped up following Mr. Jones’ death, to $200,000, so no tax is owed. However, if they live in New Hampshire, only the basis of the 200 inherited shares has changed, while Mrs. Jones’ original 200 shares still have a basis of $5,000. Here, Mrs. Jones must pay the IRS 20 percent of the $95,000 gain, or $19,000.
It is simply unjust for New Hampshire’s widows and widowers to be penalized like this.
The advantages are many in passing this important piece of legislation. The bill is still in draft form, and comments are welcomed and encouraged during this time. Comments may be directed to either email@example.com or to firstname.lastname@example.org.
Rep. Dan McGuire (R-Epsom) is in his second term in the House. He is a member of the Finance Committee and an alternate on the Fiscal Committee. He has a PhD in electrical engineering and computer science from MIT.
Kelleigh Domaingue Murphy is a retired member of the New Hampshire Bar and a local entrepreneur, owning sports and social clubs throughout New England. She is a NH state representative and a Bedford Town Councilor.