community property Archives - Page 2 of 3 - Lonich Patton Ehrlich Policastri

The Surprising Tax Benefits of Holding Title as Community Property with Right of Survivorship

May 30, 2014/in Estate Planning /by Michael Lonich

A married couple in California can hold title to their real property in various forms. Historically, many couples took title in joint tenancy without first consulting with an attorney, merely because their real estate agent would suggest it. However, the way that a couple holds title to an asset can have significant consequences in the event of divorce or the death of a spouse.

Community Property with Right of Survivorship is a relatively new way for married couples to hold title to property in California. Under Section 682.1 of the California Civil Code, property clearly titled “Community Property with Right of Survivorship” and deeded after July 1, 2001 will pass to the surviving spouse upon death of one of the spouses.

Depending on your situation, there may be significant benefits to holding title as Community Property with Right of Survivorship. When title is held in this manner and a spouse dies, their interest in the property is extinguished and it passes to the surviving spouse, avoiding probate. This can benefit the surviving spouse by eliminating any stress associated with probate procedures, family disputes, and attorney’s fees. For more information regarding the probate system and why people choose to avoid it, see our previous post.

Additionally, this form of title allows the surviving spouse to obtain the tax benefits of community property upon the death of the other spouse. Consider the happily married couple, Hank and Wendy, who bought a home in 2004 for $100,000. This is their basis. Now, the house is worth $1,000,000. If Hank and Wendy were to sell the house for $1,000,000, they would be taxed on the difference between the sale price ($1,000,000) and their adjusted basis ($100,000), or $900,000. Now let’s assume that Hank unfortunately dies and Wendy wants to sell the house. In this scenario, the amount of taxable profit will depend on how title is held.

If the parties hold title to the house as Joint Tenants, each spouse owns a 50% interest in the house. When Hank dies, Wendy automatically inherits his half share of the house. The basis of inherited property is adjusted to the value of the property at the date of death. Wendy’s basis will stay the same ($50,000) and the share she inherited from Hank will be adjusted to the value of his share of the property at his death ($500,000). Wendy’s new adjusted basis in the house is $550,000. If Wendy sells for $1,000,000, she is taxed on the difference between the sale price ($1,000,000) and her adjusted basis ($550,000) or $450,000.

However, if the parties hold title to the house as Community Property with Right of Survivorship, each spouse owns the entire property rather than a 50% interest. Upon Hank’s death, both his interest and Wendy’s interest receive a stepped up basis. Thus, the basis of the home is adjusted to the date of death value for the entire property ($1,000,000). If Wendy sells for $1,000,000, she is taxed on the difference between the sale price ($1,000,000) and her adjusted basis ($1,000,000), or nothing.

In the event of a divorce, the house is treated as community property. If you have any questions regarding how your current property is titled or are considering changing your current estate plan, feel free to contact the experienced estate planning attorneys at Lonich Patton Erlich Policastri for further information.

Remember that each individual situation is unique. While this post may detail general legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Contemplating Divorce: What to Consider Before You Cut Ties

March 21, 2013/in Family Law /by Gina Policastri

Divorce is simple, right? Absolutely not, unfortunately. There is a great deal to consider—financially and emotionally—before filing for a divorce. In some startling ways, divorce slams one chapter of your life closed. Nevertheless, obtaining a divorce decree could be the first step into the first chapter of the new life you’ve been dreaming of.

Natasha Burton’s article, “What I Wish I Knew Before I Got Divorced”* features solid considerations for individuals who are thinking about divorce or legal separation. Though Burton’s article was written for a female audience, the predominant message of the article applies to everyone: be prepared in more ways than one. Some noteworthy observations and considerations:

Recovery from divorce could take you a long time—which is absolutely normal.
Choose your legal counsel wisely.
Create a detailed plan for tackling your future living expenses.
Take a hard look at your joint finances and educate yourself.
Be ready for “unexpected” costs like health insurance.
Being vengeful toward your spouse will probably harm your family in the end and is public record.
Being divorced is not something to be ashamed of.
The holidays will be hard—really hard.
Your children will suffer from the divorce and may act out.
Finally, divorce can be completely worth it.

These considerations highlight just how far reaching the impact of a divorce can be and why it is so important to be fully prepared. Take it from Burton and be prepared from the start by choosing your legal counsel wisely. Contact the certified Family Law Specialists (as certified by The State Bar of California Board of Legal Specialization) at Lonich Patton Erlich Policastri to learn about your legal options. Our attorneys have decades of experience handling complex family law matters.

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 include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

*Used with permission via email from Women’s Day author Natasha Burton.

Retirement Benefits: I Earned Them So They Are Mine, Right?

February 7, 2013/in Family Law /by Gretchen Boger

When parties consider divorce or separation they are rightfully concerned about their property. For example, parties may contemplate who will get the house, the dog, the cars, or even the family’s prized Dyson vacuum cleaner. But what about retirement benefits? They don’t typically rank at the top of the “coveted marital property” list, but maybe they should. If you have worked for an organization for most of your adult life, you and your spouse may be entitled to substantial benefits.

Under the California Family Code, retirement benefits are divisible community property assets and will be affected by divorce, legal separation, or termination of domestic partnership. Even if the party that earned the benefits has not yet retired and has no immediate plans to retire, all retirement benefits accrued during a marriage or domestic partnership are fair game when the parties decide to part ways. In fact, the non-earning spouse is generally entitled to fifty percent of any retirement assets accumulated during the marriage.

Division of retirement benefits can be complicated and may implicate complex tax issues. The Lonich Patton Erlich Policastri team, which includes several certified Family Law Specialists who are certified by the State Bar of California Board of Legal Specialization, offer decades of experience handling complex family law matters. If you are contemplating divorce, legal separation, or termination of a domestic partnership or have been served in an action for divorce, legal separation, or termination of a domestic partnership, please contact Lonich Patton Erlich Policastri for further information.

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.

From Bonds to Zuckerberg: The Importance of a Prenup in the Silicon Valley

May 29, 2012/in Family Law /by Mitchell Ehrlich

Will Mark Zuckerberg join the list of billionaires who tied the knot without prenuptial agreements?

Mark Zuckerberg is making national headlines for his marriage that took place on May 19, 2012, just one day after the initial public offering of Facebook. The mystery remains: do Zuckerberg and Priscilla Chan have a prenup? All are in agreement that Zuckerberg would be better off with a prenup. Chan reportedly asked Zuckerberg to sign a relationship agreement before she moved to California several years ago to be with him, which outlined, for example, how much time they should spend together. It would not be surprising if she brought up the subject of a prenup first. However, celebrities such as Paul McCartney, Katy Perry and Mel Gibson chose to forgo a prenup. It’s easy to get caught up in the romance of a marriage, but it’s important to mix in a little realism.

California is a community property state, meaning that assets are typically divided 50-50 upon divorce. If Zuckerberg and Chan signed a prenuptial agreement, they would have agreed exactly how to split assets, including his Facebook stock, if their marriage dissolved in the future. The resounding principle behind prenuptial agreements is spouses themselves can determine how their property will be classified; they can agree that what would generally be classified as community will be separate property of one or the other, and conversely, they can change separate property to community property.

The current trends toward delayed marriage, cohabitation, rising divorce and remarriage rates have combined to create a new awareness of the seriousness of the marital contract and the far-reaching consequences that contract, once made, can have on individual lives. Lonich Patton Erlich Policastri can assist you in understanding your legal rights, and help you protect your family.

The Certified Family Law Specialists* at Lonich Patton Erlich Policastri have decades of experience handling complex family law matters. If you are interested in learning more about prenuptial or antenuptial agreements, contact the Certified Family Law Specialists* at Lonich Patton Erlich Policastri for further information. 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.

*Certified Family Law Specialist, The State Bar of California Board of Legal Specialization

Partnering Your Prenups and Estate Plans

February 9, 2012/in Estate Planning, Family Law /by Michael Lonich

Premarital, or prenuptial, agreements are usually associated with pre-marriage planning and divorce. However, they also provide several benefits for estate planning. Premarital agreements can protect one spouse from liability for the other spouse’s separate debts and help to implement other estate planning strategies. When premarital agreements and estate plans are considered in concert, couples can maximize financial planning and estate planning goals and avoid potentially triggering unintended tax consequences or inconsistent estate planning.

In California, a community property state, a surviving spouse has a 50% interest in all community property. This right supersedes the terms of a will but may be waived in a premarital agreement, which does not necessarily equate with disinheritance. Waiving community property rights allows spouses to specify the manner in which their assets will be distributed and helps to ensure that estate plans will be carried out as intended. This may be helpful, for example, in a family business setting. If one spouse runs a family business with his or her children, a waiver of community property rights will allow the business to pass more easily to the children without the other spouse acquiring an interest in the business, through divorce or inheritance.

There are several other scenarios in which a premarital agreement may affect an estate plan. Premarital transfers may trigger income and gift taxes; estate tax exemption opportunities for surviving spouses may be missed; and premarital agreements may not comport with estate plans for a family home. Premarital agreements often provide for the disposition of the family home or give the surviving spouse a right to continue living there. However, these provisions in a premarital agreement should be drafted such that they will not impede an estate plan’s ability to execute home-related strategies such as transferring the home to a qualified personal residence trust.

If you are interested in learning more about premarital agreements and estate plans, please contact the experienced family law and estate planning attorneys at Lonich Patton Erlich Policastri for further information. 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 include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

California Case Update: Form of Title Presumption Controls Characterization of Life Insurance Policy

January 24, 2012/in Family Law /by Mitchell Ehrlich

California is a community property state, which means that all property, with certain exceptions, acquired during marriage is considered to be a part of the marital community and not one’s separate property. At common law, there is a rebuttable “form of title” presumption which, absent a contrary state law or proof as to otherwise, deems record title as determinative of the property’s characterization as separate or community. In a 2011 California Appellate Court case, the Second District confirmed that this rule applies when a life insurance policy is in the name of one spouse.

In Marriage of Valli, 195 Cal. App. 4th 776 (2011), Husband purchased a $3.75 million life insurance policy on his life with community property funds and put the policy in Wife’s name. Husband and Wife were married for twenty years with three young children. At the time of purchase, Husband had been experiencing medical problems and wanted to ensure his family was taken care of. Husband put everything in Wife’s name so that she could use it to take care of the children or disburse it as she saw fit. When the couple decided to separate, there was a dispute as to whether the policy was community property or the wife’s separate property.

The trial judge found that the policy was community property because it was acquired during the marriage and the policy’s premiums were paid during marriage. The appellate court reversed the trial court holding that the “form of title” presumption applied and the policy was therefore Wife’s separate property. The court reasoned that the act of taking title to property in the name of one spouse during marriage with the consent of the other spouse effectively removed that property from the general community property presumption. This presumption can only be overcome by clear and convincing evidence that there was an agreement that the title did not reflect the parties’ intent. In Valli, Wife established that the policy was taken in the Wife’s name, and Husband failed to rebut the title presumption with any evidence of an understanding with Wife that, despite the policy being in her name, they did not intend the policy to be Wife’s separate property.

While decisions made during marriage may seem appropriate at the time they are made, it is important that marital partners take the time to consider every scenario that may arise in the future. The Certified Family Law Specialists* at Lonich Patton Erlich Policastri have decades of experience handling complex family law matters. If you are contemplating divorce, please contact the Certified Family Law Specialists* at Lonich Patton Erlich Policastri, who can provide you with an in-depth analysis of your issues. 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 include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

*Certified Family Law Specialist, The State Bar of California Board of Legal Specialization

Is Property Acquired After the Date of Separation Still Community Property?

February 25, 2011/in Family Law /by Julia Lemon

In California, the legal date of separation occurs when (1) at least one spouse has the subjective intent to end the marriage and (2) there is objective evidence of conduct that reflects that intent.

California is a community property state. This means that under California law, most property acquired by married persons during their marriage while living in California is presumed to be community property. Property that is acquired prior to marriage, or during marriage by gift, bequest, or devise, or as income from property owed prior to marriage is presumed to be separate property of the receiving spouse. After the date of separation, the earnings and assets acquried by one spouse are generally considered that spouse’s separate property.

For more information on legal separation (property division?), please contact us. 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 include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Marital Debts: What You Need to Know

February 22, 2011/in Family Law /by David Patton

The community estate (i.e. a married couple’s community property and quasi-community property) is generally liable for either party’s premarital and pre-separation debts. This rule applies regardless of which spouse has management and control of the property, and regardless of whether the debts were incurred to benefit both spouses.

The community may be liable for child support and spousal support obligations arising from one spouse’s prior marriage even though the other spouse did not personally incur the original obligation. The community, however, may be reimbursed when community property is used to pay the other spouse’s child/spousal support if the obligor spouse had separate property income available to use to satisfy the debt. The community estate is generally not liable for debts one spouse incurs while the spouses are living separate and apart from each other.

For more information about California divorces, please contact the Santa Clara divorce attorneys at Lonich Patton Erlich Policastri. 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 include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

What Happens to Out-of-State Real Property Upon a Divorce in California?

January 11, 2011/in Family Law /by Mitchell Ehrlich

Upon a divorce, it is often a complicated and challenging process to divide real property existing in another state. The correct treatment of an out of state home or piece of land depends on how the property is characterized under California community property law. Generally, most property acquired during marriage is considered community property. At divorce, community property is divided equally between spouses. However, property acquired during marriage while living in a non-community property state is not community property. To find out what happens to this out of state real property, it is best to look at an example.

Let’s assume you and your spouse meet, marry, and reside in non-community property state. While married, you purchase a home with the savings you both earned during your marriage. Now, let’s assume, your spouse gets a job in California and you relocated without selling your home. Years later, you file for divorce. Under California law, this property is not community property as it was not acquired in a community property state. Instead, this property is characterized as “quasi-community property.”

Quasi-community property is property (wherever located) that would have been community property if the spouses had acquired it while domiciled in California. In a California divorce proceeding, quasi-community property will be treated the same as community property. Thus, in the above example, the out of state home would be divided the same way as if it were located in California. If located in California, the home would have been considered community property as it was acquired during marriage with martial earnings. It is important to remember that California community property law is complex, and it is filled with numerous exceptions.

For more information on how your property would be characterized under California law, please contact us. 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 include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

“He Wants What?!” – The Basics of California Community Property Law

January 6, 2011/in Family Law /by Julia Lemon

Did you just find out that your husband or wife wants ownership of a special piece of personal property or real estate that you acquired before you were married? If so, you should be aware of some basic rules in California family law.

First, California is a community property state. This means that all property acquired by spouses during marriage while living in California is presumed to be community property. However, property that is acquired during marriage by gift, bequest, or devise, or income from property acquired prior to marriage is presumed to be separate property of the receiving spouse. In addition, all property acquired by each spouse prior to marriage is presumptively the property of the owner spouse. Thus, if your spouse is currently twisting your arm to give you possession of a valuable asset you acquired before marriage, your spouse may not have any legal claim to this property.

However, under certain circumstances, your spouse may have a claim in your separate property. For example, if you owned a home before marriage but community funds were used during the marriage to pay down the mortgage, the community may have an interest in the home. In addition, if you purchased real estate or personal property during marriage with your separate property but agreed with your spouse in writing that you were converting this property into community property; your spouse may also have an interest in the asset.

For more information on California community property law, please contact us. 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 include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

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