Community property and buying a home in Kentucky

Does Kentucky have community property?

Not by default. IRS Publication 555 (December 2024) covers Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. It says it does not address the “community property” election under Alaska, Tennessee and South Dakota law, and it does not mention Kentucky’s trust act at all. So that publication gives no answer on how a Kentucky trust is treated for federal tax; a tax professional has to.

Kentucky’s own default is a marital property system. At divorce, property “acquired by either spouse subsequent to the marriage” is marital property, with exceptions (KRS 403.190(2)):

• gifts, bequests and inheritances received during the marriage, and income from them;
• property acquired in exchange for property owned before the marriage or received as a gift or inheritance;
• property acquired after a decree of legal separation;
• property excluded by a valid agreement of the spouses; and
• increases in the value of premarital property, to the extent they did not result from the spouses’ efforts.

Property acquired during the marriage is presumed marital whether title is held individually or “in some form of co-ownership such as joint tenancy, tenancy in common, tenancy by the entirety, and community property.” The spouse who disagrees must show that an exception applies.

How should spouses take title in Kentucky?

The wording of the deed matters. Under KRS 381.050, real estate conveyed to a husband and wife is held as tenants in common unless the deed expressly provides a right of survivorship. If you want the survivor to take the whole home, the deed must say so. This is a good reason to have a professional draft the deed; see whether you need a real estate attorney.

Once a couple holds a home as joint tenants with survivorship and lives in it, one spouse cannot split off a share alone by deed. KRS 381.130(2) bars the partition of “residential real property that is owned exclusively by husband and wife as joint tenants with a right of survivorship and actually occupied by them as a principal residence.”

Adding a spouse to a deed between spouses is exempt from Kentucky’s transfer tax (KRS 142.050(7)(e)); see Kentucky transfer tax.

What happens at divorce?

The court first assigns each spouse his or her own (non-marital) property, then divides the marital property “without regard to marital misconduct in just proportions” (KRS 403.190(1)). It considers:

1. each spouse’s contribution to acquiring the property, including as a homemaker;
2. the value of the property set apart to each spouse;
3. the duration of the marriage; and
4. each spouse’s economic circumstances, including “the desirability of awarding the family home or the right to live therein for reasonable periods to the spouse having custody of any children.”

“Just proportions” does not mean 50/50. A transfer between former spouses as part of a divorce is exempt from the transfer tax.

What happens at death? Dower and curtesy

Kentucky still has a version of dower (for a wife) and curtesy (for a husband), now a single interest. Under KRS 392.020, a surviving spouse who outlives an intestate spouse has a life estate in one-third of any real estate the other spouse owned in fee simple during the marriage “but not at the time of death,” unless the survivor’s right “has been barred, forfeited, or relinquished.” When a married owner sells, ask your title professional whether a spouse must sign or release this interest.

If the deceased spouse left a will, the survivor may release what the will gives and take the statutory share instead; in that case the share in real estate owned at death is one-third (KRS 392.080). An absolute divorce bars either spouse’s claim on the other’s property after death (KRS 392.090). What the survivor takes in the home also depends on how title was held; see the tenancy rules above.

The Kentucky community property trust

KRS 386.620 to 386.624 let spouses create a community property trust. The act took effect on July 15, 2020. The rules in the statute:

• Formalities. The trust must declare that it is a Kentucky community property trust, be signed by both spouses and begin with a capitalized warning that its consequences “may be very extensive,” including rights at divorce.
• Trustee. At least one trustee must be a “qualified trustee”: an individual who lives in Kentucky, or a bank or trust company authorized to act as trustee in the state. That trustee keeps the trust’s records and prepares its income tax returns. A spouse may serve as trustee.
• Who may use it. Spouses may classify property as community property by transferring it to the trust “whether or not both, one, or neither spouse is domiciled in this state.” No consideration is needed.
• Terms. Spouses may set the management and control of the property and what happens on divorce or death. The trust cannot be amended or revoked unless it says so, except that either spouse may change the disposition of his or her half at death.
• At death. One half belongs to the survivor and one half to the decedent.
• At divorce. The trust ends, and the trustee distributes half of each asset to each spouse unless both agree otherwise in writing.
• Creditors. A debt of one spouse may be paid from that spouse’s half; a debt of both may be paid from the whole trust.

Putting a home into the trust requires a deed to the trustee, which must meet the recording rules for any deed. The transfer tax exemption for trusts applies only in the cases KRS 142.050(8) lists. The trust has real consequences, so most couples will want legal and tax advice first. Our page on buying a home in Louisville shows what Kentucky buyers pay at closing.