The Union (So to Speak) of Prenuptial Agreements and Estate Planning

August 3rd, 2010

Many people fear that drafting a prenup means that they are admitting their marriage will end before it has even begun. The fact is (and please forgive my being a trifle morbid here) that all marriages end – if not in divorce, then in death. For this reason, the California state legislature (and every other state in the Union for that matter) has helpfully crafted a default (read “generic”) plan for you in case you die without an estate plan, or divorce without a prenup. So the question you should really be asking yourself, is not whether a prenup means your marriage will end, but whether the government’s generic plan is the right plan for you.

A prenup, like an estate plan, is nothing more than a document allowing you to take control over your property. Most people believe they are better suited to decide how their property should pass at death than the government, and the same logic often applies to divorce. Many couples also find that defining their expectations before marriage helps minimize conflict later.

If you have a prenup or are planning to have one, then you have already determined that the cookie-cutter government plan is not right for you and your family. Chances are that the government plan for how your property should be divided at death will not meet your standards either.

So with those preliminary points out of the way, let’s turn to the meat of this posting: the intersection of the two documents.

It is important for married couples and registered domestic partners to make sure that their estate plans and their premarital agreements are not in conflict. It is not uncommon for estate planning attorneys who do not have experience with family law to narrowly focus on issues such as minimizing “death taxes” at the exclusion of other previous intentions of their clients. A common mistake is for an estate planning attorney to re-title property for the sake of the estate plan, but in contravention of the premarital agreement. This can have the unfortunate effect of negating the entire premarital agreement entirely, and you can imagine the negative impact that might have.

Another example is that many clients on a second marriage want to ensure that their property will pass to their children from the first marriage, and not to the new spouse’s family. This is possible, but the estate plan and the prenup need to work in conjunction with one another to be effective. One document cannot do the job if the other is not in agreement.

For these reasons, it is extremely important that your attorney have an understanding of both estate planning and family law. The law around property varies greatly depending on the context and circumstances. Failure to have an attorney review your unique situation from a global perspective can have serious unintended and very expensive consequences.

Guest Post: Protecting Your Credit During Separation

May 13th, 2010

We’re happy to invite our good friend Jim Argo to post this week about credit scores. Jim is a truly talented mortgage broker, and also a hell of a jazz musician. Here’s what Jim has to tell us:

When a marriage or domestic partnership ends in divorce or separation, the lives of those involved are changed forever. During this time of upheaval, one thing that shouldn’t have to change is the credit status you’ve worked so hard to achieve.

Unfortunately, for many, the experience is the exact opposite. Unfulfilled promises to pay bills, the maxing out of credit cards, and a total breakdown in communication frequently lead to the annihilation of at least one person’s credit. Depending upon how finances are structured, it can sometimes have a negative impact on both parties.

The good news is it doesn’t have to be this way. By taking a proactive approach and creating a specific plan to maintain one’s credit status, anyone can ensure that “starting over” doesn’t have to mean rebuilding credit.

The first step for anyone going through a divorce or separation is to obtain copies of your credit report from the 3 major agencies.  Once you have this information at your fingertips, it’s time to make a plan.

There are two types of credit accounts: The first type is a secured account, meaning it’s attached to an asset. The most common secured accounts are car loans and home mortgages. The second type is an unsecured account.

In the case of a mortgage, enlisting the aid of a qualified mortgage professional is extremely important.  A mortgage professional can help you review your existing home loan along with the equity you’ve built up and then help you to determine the best course of action.

When it comes to unsecured accounts, you will need to act quickly. It’s important to know which person (if not both) is vested.  If you are merely a signer on the account, first check with your attorney, and if there are not legal problems with doing so, then have your name removed immediately.  If you are the vested party and your spouse or partner is a signer, also check with your attorney, but consider having their name removed.  Any joint accounts (both parties vested) that do not carry a balance should be closed immediately if both parties agree.

Ensuring on-time payment of debt which carries your name is paramount when it comes to preserving credit. Keep in mind that one 30-day late payment can drop your credit score as much as 75 points.  So, regardless of which person is ordered by the judge to pay the account, any late payments affect the credit score of both parties.  The message here is to not only eliminate all joint accounts, but to do it quickly.

Divorce and separation are difficult for everyone involved. But by taking these steps, you can ensure that your credit remains intact.

James Argo

www.JamesArgo.com

How LGBT Couples Are Avoiding Domestic Partnership Headaches

April 15th, 2010

Is entering a California “registered domestic partnership” the right move for you and your partner?  More and more gay and lesbian couples are finding that the law relating to their relationship is confusing, and potentially very expensive.

Many couples who have been together for years, and who registered as domestic partners, are surprised when they later end their relationship and discover they are subject to the special rules surrounding “community property.”   In other words, they discover that half of their earnings during the domestic partnership are deemed to belong to their partner, and that they may have to pay spousal support (sometimes called alimony).   This is all because California law now extends the same burdens and benefits of marriage to registered domestic partners.

Further complicating matters for lesbian and gay couples is the fact that while some states recognize California domestic partnership, many do not.  This becomes a problem when gay and lesbian couples move out of California and then wish to “divorce” in their new state.  Many are forced to move back to California for the sole purpose of finalizing their divorce. 

Gay and lesbian couples in California also face the reality of a complicated and confusing tax filing process.  In California, domestic partners must file their returns as “married.”  Because of the so-called “Defense of Marriage Act,” however, the IRS and federal government refuse to acknowledge either gay marriage, or domestic partnerships for tax purposes.  Thus, gay and lesbian couples must file separate individual returns for federal taxes, and then complete a mock “married” federal return in order to get the proper numbers to then go back and place on their California state returns.  This quickly becomes extremely complicated.

More and more gay and lesbian couples are using Preregistration Property Agreements (“prenups”) to avoid many of these community property and alimony issues later on.  Other couples are choosing to not register at all, and instead are making sure that they have the appropriate documents such as wills, trusts, powers of attorneys and healthcare directives in place to protect themselves and create a quasi-marital relationship. 

There is no right answer to how any couple should memorialize their relationship.  Understanding the legal effect of their decisions however, can save time, frustration, and potentially money down the line.

Mediation in the Divorce Process

March 25th, 2010

“Boy, they really could use an attorney,” the woman at the cocktail party recently told one of us, “but they insist on doing it themselves. It’s just a mess!”

It isn’t difficult to understand why, in the face an unknown and confusing divorce process, they would choose not to see an attorney. Attorneys are simply perceived as too expensive—and potentially poisonous—to an already traumatic and sad situation. To the woman at the cocktail party, we suggested mediation.

Using an attorney as a mediating problem-solver instead of a problem-maker can ease the process for a divorcing couple, cutting stress and costs. Couples must remember that divorce is a legal process—one they must go through in order to end their marriage or their registered domestic partnership. The divorce process was not designed to be easy on the parties; it was designed to be navigated by attorneys. Dissolution of a marriage or registered domestic partnership is litigation and, all too often, it is simply too inefficient, too expensive and too taxing on one’s soul. In these cases, mediation is a good option.

A successful mediation will avoid a drawn-out fight and ensure neither party sees the inside of a courtroom. A qualified mediator can help parties comprehend the process, ensuring that both remain an integral part of process and that neither party is sidelined. He or she can keep the process directed toward resolution, thus ensuring efficiency and keeping down costs. In turn, parties gain greater control over the process, less constrained by procedure and what a court might decide.

The mediation process is confidential and, with little exception under California law, what is said and done in a mediation cannot be used in court against either client.

The result of a successful divorce mediation will be an agreement between the parties as to how the divorce will be resolved; for instance, how the property will be divided or how custody of the children will be arranged. Mediation is a significantly more efficient option than bringing litigation. This means a significant cost savings, and a significant reduction in stress.

California Prenup Timing Specifics

December 23rd, 2009

Since my last post, I’ve had several questions about the timing specifics for California premarital agreements.  Here are several key California prenup timing rules to keep in mind.  First, California law requires that seven days pass between the time you are first presented with a premarital agreement, and the time you sign it.  This is rather cleverly called the “Seven-Day Rule.”  Here’s a link to California Family Code Section 1615 in case you want to actually read the law.

You may have noticed that this rule is anything but crystal clear.  Some lawyers believe the rule means that seven days must pass between the time you deliver the final draft of your agreement, and the time you sign that draft.   Other lawyers believe the provision means you must wait seven days between the first time you discuss a prenup with your fiancé, and the time you sign the final draft.   You and your California prenup lawyer should discuss this issue if you have any questions.  If you’re concerned about enforcement, you should probably take the most conservative approach, and wait seven days between delivery of the final draft to your fiancé, and signing of the agreement.

Another timing consideration is whether you should sign on your wedding day.  Rather than give a direct answer to that, allow me ask another a question: who really wants to think about a contract on their wedding day?  Nobody, and for good reason.  You can’t possibly consider all the ramifications of signing a premarital agreement when you’re about to walk down the aisle.  Trust me: sign before your wedding day.  The earlier before the wedding the better.

Closely related to the signing on your wedding day issue, is the question of when you should start discussing the agreement with your fiancé.  The rule here is to bring up the agreement before the wedding invitations go out.  You want to avoid the presumption that your fiancé had no choice but to sign and marry you since Aunt Flo had already bought her plane ticket.

You should also keep in mind that your lawyers are going to need some time to draft a solid agreement, and additional time to negotiate the wording of various provisions.  Depending on the complexity of your assets, this can take months.   A good rule of thumb is to call your lawyer before the invites go out, and if you can’t do that, then no later than four months before your wedding date.

Prenup Enforcement Basics

December 16th, 2009

Some couples sign premarital agreements that include terms they know aren’t enforceable.  They do this because they wish to memorialize agreements in writing, whether or not California courts will uphold those agreements.

Other couples care mostly about protecting assets in case of a future breakup, and so enforcement is a top priority.

Either way, couples should consider the three prenup enforcement basics.  First, both parties absolutely must be represented by an attorney (even if one of the parties is an attorney themselves).  The case law has been quite clear on this score: when one party doesn’t know what they’re getting into, the prenup can be overturned.  Don’t risk it.  Get counsel.

Second, give the process time.  You must wait 7 days between delivering the final draft of your agreement to your fiancé, and the signing of that that draft.  Also, it’s best to begin negotiations before the wedding invitations go out.

Third, full disclosure of your financial picture is vital.  When in doubt, over disclose.  Each of you needs to know what you’re getting into if you want your agreement to be fair and enforceable.

Confirmation: Money Fights Predict Divorce

December 7th, 2009

We’ve always said that money fights lead to divorce.  This study indicates that at the very least, money fights predict divorce.

Here’s a quotation from an article discussing the study:

A new study, by Jeffrey Dew at Utah State University, attempts to quantify [the risk that money-related tensions lead to divorce]. His finding: Couples who reported disagreeing about finance once a week were over 30 percent more likely to get divorced than couples who reported disagreeing about finances a few times a month.

This is precisely the reason that couples need to discuss money before marriage.

Fantastic Article About Money Talks Before Marriage

October 26th, 2009

Take a look at this NYTimes article about the necessity of holding money talks before marriage. Here’s an excerpt:

Divorce tends to be emotionally gut-wrenching for the people who go through it (not to mention those around them). But most couples don’t realize that divorce can also be among the most ruinous financial moves anyone can make…

The risk that any marriage will end in divorce is about 45 percent, according to David Popenoe, a professor of sociology emeritus at Rutgers University. The chances fall to about 40 percent for first marriages and decline further for college-educated couples, people from intact families and couples who share the same religion.

The article goes on to list several discussions that couples need to have before getting married if they want to avoid the statistics above.

No-fault Divorce: In California, It Means Just That

September 23rd, 2009

Does it matter that he was cheating with his secretary for half the marriage?  What about the fact that she was never home for dinner and spent all her time at the office?  Guess what… In a California divorce, the answer is no.

California is a no-fault divorce state.  That means the court has no interest in who you think is to blame for the downfall of the marriage.  California courts do not want to hear about the lying, the cheating, the fact that he never listened, or that she was constantly nagging.  On the Petition for Dissolution of Marriage (one of the forms you file to get a divorce or “dissolution” started in California), there are only two optional grounds for a dissolution: Irreconcilable Differences, or Incurable Insanity.   That’s it.  Irreconcilable differences means that blame doesn’t apply.  Incurable Insanity means that you can prove by competent medical testimony that your spouse was incurably insane while you were married.

A related concern amongst parties is whether a judge will view one spouse in a better light because he or she filed first.  The reality is that judges do not care who files for dissolution first.  There may be other strategic effects to filing at different times, and you should discuss these with your California Divorce Lawyer.

One great advantage of a no-fault divorce system is that you don’t waste time and money proving blame, or cruelty, or infidelity, as in some states.   This is not the case everywhere.  Take, for example, supermodel Christie Brinkley’s recent divorce in New York State.  Through the course of that trial, the court allowed Ms. Brinkley to expose publicly husband Peter Cook’s tawdry affair with his 18 year-old assistant, as well as his addiction to pornography.  This kind of dirty laundry usually has no place in a California divorce.  Instead, you and your California divorce lawyer can focus on the legal issues: property division, support, and child custody if there are children involved.

One important exception to the no-fault divorce rule is a situation involving domestic violence.  The topic of domestic violence is outside the scope of this blog posting, but suffice it to say that California courts take domestic violence very seriously.  If you are in immediate danger, you should contact the police immediately and make sure you are safe.  If you have been a victim of domestic violence in the past, you should contact a competent California family lawyer to discuss your options.

A no-fault divorce means it’s not about who did or said what to whom during the marriage.  It’s about getting the divorce completed by applying community property, custody, and support laws, so you can leave the skeletons in the closet and out of the courtroom.

Good Prenups Take Time. Period.

September 18th, 2009

Probably the first question people ask about premarital agreements (also called prenuptial agreements, or “prenups”), is “when should we start planning?” I’m sure you can guess the answer: start planning as early as possible.

There are two main reasons to get started negotiating your premarital agreement early.   First, if it ever comes to enforcement, courts want to see that all the parties involved had plenty of time to consider what they were getting into, and that they got into it voluntarily. That means no signing on your wedding day. When California courts invalidate prenups, they often do so because one party either didn’t know what they were getting into (for instance, they didn’t have a lawyer), or they signed the agreement under unfair pressure – for example, they didn’t have enough time to fully consider the agreement. Give your fiancé enough time to fully discuss the agreement with his lawyer, and you avoid both of these problems.

Second, allowing for plenty of time is the more graceful approach to a difficult topic. A prenup can make your marriage stronger if you approach it gently. This means not dumping the idea on your fiancé two weeks before the wedding. There is no better way to terrify your fiancé than demanding he sign an agreement when the invitations have already gone out. Imagine: grandma has already booked her ticket, the cake is already mostly baked, and the dress is just back from the tailor. You come home one night, and drop a prenup in his lap. What do you imagine is going to happen? It’s not pretty – that’s not the kind of pressure to place on your future partner. Trust me, give him time. Bring the topic up slowly. Discuss it in terms of what’s fair and supports your relationship. You’re entering a life-long partnership here. Treat it respectfully.

A good California prenup lawyer can guide you around all these issues. Some lawyers can even draft a document in just a couple of days, but that’s not a situation you want to find yourself in. The longer you wait to get started, the weaker your agreement will likely be. Take the time and do it right.