We’ve gathered the top Family Law Matter questions we get most often and answered them for you here. If you would like further explanation on any of the topics outlined below, please reach out to our Family Law team to assist.
“I’m expecting an inheritance…should I get a prenuptial agreement?” YES!!
If you don’t have a prenuptial agreement in California, then the Family Code applies. Typically, an inheritance is considered separate property even if received during your marriage. However, even if an asset is considered your separate property, it can still be used to pay child support, spousal support, or even your ex’s attorneys’ fees. In other words, it can be counted as part of your “income” earned during and after marriage.
You can simplify things with a prenuptial agreement, because in California, you can agree that the inheritance will never be considered in determining spousal support or attorneys’ fees. However, spouses cannot contract for child custody or child support in California.
Commingling separate property is messy and expensive. By eliminating your inheritance through a well-planned prenup, you do not need to worry about spending thousands of dollars to trace your inheritance to your family.
With a solid prenuptial agreement, you can eliminate disputes regarding your inheritance at divorce.
Martial Settle Agreements and Life Insurance Policies
When parties divorce, they often enter into a “Settlement Agreement” that addresses child support, spousal support, and division of assets. Often times when one party is ordered to pay the other spousal and child support, the marital settlement agreement will require one party to maintain a life insurance policy on his or her life naming the other party as the primary beneficiary. This is to provide the supported spouse with a certain degree of financial security for support should the paying party pass away. Unfortunately, however, this can also result in unintended tax consequences to the insured spouse’s estate. This is because the IRS will include the face amount of the policy in the supporting spouse’s estate for the purposes of calculating the amount of estate tax owed by the estate.
This can be avoided through the use of a tax-sensitive marital settlement agreement and an irrevocable life insurance trust. This way the life insurance policy would be owned by the trustee of the irrevocable life insurance trust. Since the irrevocable life insurance trust, not the spouse, is the owner of the policy, the life insurance policy will not be included in the spouse’s estate for the purpose of calculating the estate tax owed.
Getting Married in California? Here’s what you should know.
Community Property: Anything acquired during marriage is presumed to be community property. This means that the parties’ earnings during marriage are community property (owned one-half by each spouse). Community property is equally divided in the event of a divorce.
Separate Property: Any property acquired before marriage or acquired during marriage by gift or inheritance, is separate property (if documentation exists to prove it is separate property). Separate property is confirmed to the owner at divorce. If one party claims that an asset is separate property, it is that party’s burden to prove it – so records should be saved even if property is a spouse’s separate property, it can be used to pay spousal support, child support, and attorney’s fees for the other spouse.
If a separate property asset (e.g. house or business) increases in value during marriage, the community likely has an interest in that asset so that it will be valued and divided in the event of a divorce.
If one spouse has separate property going into a marriage, it can remain separate property by always keeping it in a separate account and never adding any community funds (e.g. income from employment), or the other spouse’s name to the account. All separate property assets should be documented accordingly (e.g. print annual statements and store them in a safe place).
Our California Courts have a helpful summary here: Property and Debt in a Divorce or Legal Separation.
Spousal Support: Spouses have a duty to support each other during marriage. At divorce, if there is a disparity in income, the person who makes more money will likely need to pay spousal support to help the other spouse meet his or her needs. Keep in mind that both spouses have a duty to put forth a good faith effort to become self-supporting.
Individuals about to marry who don’t like the rules and want to opt out of them should talk to a family law attorney about a prenuptial agreement. Individuals who are already married may want to consider a post-nuptial agreement.