HOW TO PROTECT YOURSELF WITHOUT A PRENUPTIAL AGREEMENT
Debating on whether or not to present your future spouse with a prenuptial agreement can be a hot button issue. Nothing is more romantic than planning for the possibility of divorce before your wedding day. If you are the type of person that would like to have protections regarding your property, but do not want a full-fledged prenuptial agreement, there are many options available to you. Since in California we run a community property system, acting upon these options are necessary to ensure that your separate property stays separate. Community property is all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state. (Cal Fam Code § 760). Separate property is all property acquired before marriage or during marriage by gift, bequest, devise, or descent, including the rents, issues, and profits of the separate property. (Cal Fam Code § 770). As a married person, however, you can generally maintain your own “separate property” by making sure it literally stays separate and doesn’t mingle with anything community.
Separate Property Inventories: the best way to ensure you have adequate accounting for your separate property assets is to keep an inventory of them. You would identify the property you are bringing into the marriage and identify the rents, issues, and profits from them. Think of this as a proactive tracking and accounting of what you have. While this task is time consuming, it would be helpful to identify the fair market value of each item you are listing as well. In case there is any appreciation in value of your property, your spouse may have a claim to some reimbursement to that appreciation, discussed more later. This inventory does not need to be limited solely to property you acquired prior to marriage. You can update this list during the marriage by identifying any property you received as a gift, devise, bequest or descent. As noted above, property in these categories are also your separate property whether or not you are married at the time you receive it. Id.
Separate Funds: Keep your non-marital funds separate. The best way to generally ensure your marital funds are separate would be to keep any money you earned before marriage, or inherited at any time, in a bank account separate from your spouse’s. Obtaining a sole account in your name gives only you access to the funds in the account and the ability to obtain information from the account. (Carillo, supra at 38-39). Any earnings you receive during marriage should go into another account, either another sole account or a joint account with your spouse. Any earnings you receive during marriage are community property barring an agreement between you and your spouse. This includes any expenditures of time, talent, and labor. (In re Marriage of Dekker, 17 Cal. App. 4th 842, 850, 21 Cal. Rptr. 2d 642, 647 (1993)). When your community property earnings are combined with you separate property earnings it results in “commingled” funds. (Carillo, supra at 79). Courts would need trace the funds back to both separate funds and community funds to determine their contribution to the purchase and thus their entitlement to reimbursement. Keeping funds separate saves a lot of time and confusion and is more likely to result in those funds being treated as your separate property later than if the funds have to be traced.
Real estate: Keep your real property separate from your spouse. One example: purchasing a home before you met or were married to your spouse. If you want that property to remain solely your separate property then you would refrain from adding your spouse’s name to the title of your home. Having joint title on the deed of your home raises a presumption that the property is community property. (Cal Fam Code § 2581). In addition, you would also need to maintain the home solely with non-marital funds. This could be done with money you earned before marriage or an inheritance because these are your separate property, as defined above.
Separate Business: Obtain a valuation of your separate business prior to marriage. The value of your business at divorce will likely be higher than before marriage and would be subject to the community property presumption. Any community contributions to this increase will be entitled to some reimbursement at divorce. (In re Marriage of Dekker, 17 Cal. App. 4th 842, 851, 21 Cal. Rptr. 2d 642, 647 (1993)). The problem is, if you did not obtain the value of your business before marriage, your spouse may receive more than he or she is actually entitled to receive or actually contributed to the business growth. For example: your business was valued at $100,000 on the date of your marriage and worth $500,000 on the date of your divorce. Your spouse would be entitled to $200,000 which is half of the appreciation (or difference between the two valuations). If you did not receive that initial valuation, the court could end up valuing it at less than its actual value at the time, and your spouse would receive more.
If you have an issue concerning your separate property rights, please contact one of the experienced attorneys at Lonich Patton Erlich Policastri. We offer a free half-hour consultations.
Lastly, please remember that each individual situation is unique, and results discussed in this post are not a guarantee of future results. While this post may detail general legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.