Persons marrying for a second time in California often want to protect themselves, in the event they divorce, and to protect both their surviving children and their new spouse if they become incapacitated and when they die.  Balancing these competing goals requires good planning.

Consider a hypothetical illustration:  Jane owns a service business, which she incorporated as an LLC; she is employed by the LLC.  She also owns various real estate, she has an investment account; and has a 401 (k) retirement account and an Individual Retirement Account (IRA).  She has an eight year old daughter, Evelyn.  Jane is engaged to John, who is employed, has an IRA, and does not own any real estate.  They plan to purchase a new home together once married.  How may Jane likely proceed?  [Note:  Consult an attorney regarding any real life situation.]

Jane decides to keep her substantial separate assets in her own revocable living trust to maintain their separate property character.  When she marries John, Jane amends her trust and her will to state her marriage and to provide for John in the event of her incapacity and death; otherwise, failing such amendment, John as a surviving Omitted Spouse could claim a share of Jane’s estate, if he survive her.  As his spouse, Jane owes John a right of support while they are married, and her estate plan will honor her obligation.

In the event of death, Jane wants John to have a place to live.  Perhaps Jane will buy life insurance naming John as the primary  beneficiary or, better yet, naming their joint trust together as beneficiary (so that the mortgage on their house together is paid off).  Also, Jane’s separate trust might provide that certain assets are held in further trust for John’s benefit until he dies or remarries at which time Evelyn inherits what remains, either outright or in further trust if she is then still a minor.  The same or different assets will be held in further trust for Evelyn until she reaches adulthood.   The Trust will say how the trustee will use the assets to assist her daughter during her minority and afterwards.

Jane and John will probably want to own the home they buy together in a joint revocable living trust as co-trustees, as the residence is their community property.  Once married, because their employment earnings become community property, they will deposit their marital earnings into a joint account or into an account owned by their joint trust.  Jane will keep her investment account in her separate trust.

Likewise, any retirement contributions that either spouse makes from marital earnings should go into new (IRA) accounts established during marriage.  Each spouse’s retirement contributions before marriage remain their separate property.  Jane’s 401(k) is controlled by the federal Employee Retirement Income Security Act (“ERISA”) and thus outside California’s Community Property laws.

Over the course of their marriage, the community property estate will gain an increasing interest in Jane’s business through her work.  Such interest which would have to be compensated if Jane and John divorce.  Jane’s real property will remain her separate property, but the community property estate would be entitled to reimbursement for any marital earnings used to pay off any mortgage or improvements to Jane’s separate real property.  Jane will want to keep records of such payments.

If Jane and John have children together, Jane will again update her estate planning to include such children as beneficiaries of her trusts and her retirement accounts.

Jane may ask John to sign a pre-marital agreement to establish what is each spouse’s separate property, the couple’s community property, their rights of reimbursement, and rights to spousal support; child custody and child support, however, cannot be included.  Such premarital agreements require full and open disclosure of assets, liabilities and income by each party.  To be enforceable, such agreements must be entered into voluntarily and without undue influence or fraud.  Each must be apprised of his/her legal rights and be encouraged to obtain independent counsel.

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”