Sunday, September 1, 2013
Married Persons Property Problems
Married Persons Property Problems
While this blog is directed at Estate Planning for the Recently Divorced, we are creatures of habit. If you were married, you will probably marry again. Even so, you might be reading this blog while going through a divorce, or even if you are happily married, because I am trying to give everyone some good information. Under any of these situations, in California, we need to understand several property concepts, including: Separate Property, Community Property, Quasi-Community Property and how these may affect you ability to plan and give.
Let’s start with some definitions. Assuming you are single, and have never been married, then Separate Property is whatever you have. However, if you are or have been married, then you need to know that Separate Property of a married person includes all property owned by that person before marriage, all property acquired by that person during marriage by gift, bequest, devise or descent, and the rents, issues, and profits from any of the aforementioned property. Family Code §770. Community Property is all property, real or personal, wherever situated, acquired by a married person, during marriage, while domiciled in California. Family Code §760 and Probate Code §28. You may have noticed that Community Property had an added layer of time, status and location, that is, being married while in California. This distinction is important when understanding the third property type, Quasi-Community Property, which is all property, real or personal, wherever situated, acquired by either spouse, during marriage, while domiciled other than in California, which would have been considered community property if they had been domiciled in California OR in exchange for real or personal property, wherever situated, which would have been community property under the code. Family Code §125 and Probate Code §66. These classifications sound more difficult than they are, but are very much driven by actual facts of date, time, location and source of funds. This must be determined in order to decide if you have any power or control to include these in your Estate Plan.
Obviously, as a single person, never married, this is a non-issue. As a married person, you and your spouse should know and discuss these questions in developing either a single Estate Plan or compatible separate Estate Plans. As someone who was married and is now recently divorced or coming out of a divorce, you must be clear and careful that all property disposed of, allocated, or divided through the divorce has gone through this filter, and is properly re-titled so that you can make a clear Estate Plan.
So, what difference does property type make? A married person can have Separate Property. A married person may convey the Separate Property any way they want, and without consent from their spouse. FC §770(b). Equally, they have complete discretion and full testamentary power over their Separate Property. PC §6101. Additionally, a married person may “transmute” or convert their Separate Property into Community Property. FC §850. This can be a part of your Estate Planning process or equally a mistake if not fully understood.
As for Community Property, as well as Quasi-Community Property, both spouses have a present, existing and equal ownership interest during their marriage. FC §751. While both spouses are living, they each have an equal and undivided one-half interest in that property. However, while this is a joint interest in the property, upon the death of either spouse, one-half of that community property automatically belongs to the surviving spouse and the other half belongs to the deceased spouse and may be disposed of under the deceased spouse’s will. PC §100 and PC §6101. This is a critically important point, as the issue of taxes and basis value create the reasoning behind the Estate Plan to be discussed in future blogs.
So, while you have testamentary capacity over all of your non-transmuted Separate Property, as well as half of the Community and Quasi-Community Property, what happens if you try to Will-away more than your half? You trigger the Widow’s Election. If the first spouse to die tries to dispose of more than their Separate Property and their share of the Community and Quasi-Community Property, and in doing so adversely affects the surviving spouse’s property rights, then the surviving spouse is put into a situation where to they cannot simultaneously take under the will and take their share. It may sound unusual, but the surviving spouse is in an all or nothing situation. Take your automatic property rights or take through the will. There is no partial or picking and choosing. This is based upon old doctrines of law, which we won’t get into here.
What is the survivor to do? The surviving spouse, widow or widower, can consent to the excessive gifting, to the survivor or away from the survivor. The survivor may elect to take their right in property. This is the election, to agree or not to agree. The reasons and ramifications are too complex for this blog right now. Suffice it to say that there are control reasons, such as family business or property to move to the next generation, there may be control reasons to provide for management and income for a surviving spouse, and also issues of probate, tax and overall financial impacts. Rather than forcing this dilemma through a Will as the sole Estate Plan, similar and less stressful results may be accomplished through a more routine Trust mechanism.
I hope you will review your Estate Plan with you're “A” Team, or at least begin to seek out an Estate Planning Attorney to start this process. Stay tuned for future blogs. However, if you have any questions, feel free to respond below, or if you are interested in learning more about an Estate Plan, Wills, Trusts, Advanced Healthcare Directives, or Divorce, Custody, Visitation, Child Support, Spousal Support, Property Division, Modifications, Remarriage, or Pre-Nuptial Agreements, please contact me at please contact me at email@example.com, or through my other websites, www.fcbegun.com, or www.linkedin.com for Fred Begun.