’Til death or divorce – and how to do your part

I often hear it said that no bride or groom “plans” on divorcing but having a plan in the event of divorce isn’t such a bad idea.

There are things one can do before, during, and after a divorce to protect oneself and their assets. Whether you’re married, planning on getting married, or in some stage of divorce, knowing what actions you can and cannot take with respect to your assets in the event of divorce or death is crucial.

Pre-marriage

If you’re getting married, get a prenuptial agreement. Notice I didn’t say “if you have significant assets” or “if one of you is wealthier than the other.” A prenup gets a bad rap, but it’s a document that can protect both parties.

California is a community property state, which means assets and debts acquired during the marriage belong to each spouse. Community property acquired during the marriage also can be seized to pay the separate property debt of either spouse.

Each spouse can protect the other from the current and future creditors of the other through a prenuptial agreement. This is a good thing.

You can also agree in advance about what will become community property, and, importantly, what will not. This is useful to know whether you divorce or not. It may make your married life more harmonious as well, as you will have talked through expectations and finances.

Before separation

In California, spouses have a fiduciary duty to each other. They must act in good faith and fairly deal with each other. This is important to keep in mind if the marriage is souring and you’re contemplating a divorce. A spouse who attempts to move all assets to their own name, or hides assets, or gifts them away (usually to a party friendly only to the “donor” spouse) before filing for divorce, is in breach of this duty. A court may consider such actions as “divorce planning” and move those assets back to the marital estate. The court may also be skeptical of the honesty of the spouse who moved assets.

You can and should review and catalog assets and obtain copies of all relevant documents (bank statements, wills, trusts, investment account statements, deeds, business agreements, retirement account statements, insurance policies, etc.) that provide the proof of ownership and value.

Each spouse, whether contemplating divorce or not, can also prepare their own estate plan that bequeaths their assets (half the community property and all of their separate property) to whomever they’d like. Moving more than half of the community property into a separate living trust, however, might be a breach of the fiduciary duty. Moving an asset that hasn’t been clearly defined as separate property may also be a breach of duty.

During divorce

Pursuant to the California Family Code, when one party files for divorce, a Standard Automatic Temporary Restraining Order (“ATRO”) is put into effect as to both parties. The ATRO prevents either spouse from:

—Selling, transferring, concealing, or borrowing against property

—Changing beneficiaries on insurance policies

—Taking children out of state without permission

—Withdrawing large sums of money from joint accounts

—Canceling or changing insurance policies

without the consent of the other party. Violating an ATRO can result in serious legal penalties, including fines or contempt of court charges.

The legal proceedings for a divorce in California take a minimum of six months and often much longer. During that time, your spouse is still your legal next-of-kin, which gives them some authority and rights. You may have appointed your spouse as your agent for health care decisions or as your power of attorney. You can and should update these documents, if your spouse is not still the agent you would choose.

In addition, you may have a joint trust with your spouse that no longer states your desires on your death. If you do, you may revoke the trust. However, you’ll need to check the provisions of the trust to determine whether either party acting alone may revoke the trust or if it takes both parties. Seek permission to revoke the joint trust if necessary—your soon-to-be ex-spouse may willingly agree to that much.

The ATRO does not prevent you from amending or creating a will. Thus, early in the divorce proceeding you should update your will to provide who should inherit your separate property and your half of the community property. Likewise, as you could during marriage, you can create a trust to set up to receive your share of assets. You can’t move assets into the trust, but you can create a will that pours those assets over into the trust should you die prior to the divorce being finalized.

Furthermore, by giving notice to the other party, you can change the right of survivorship designation on certain assets. A property held in joint tenancy can be converted to tenants in common by one party. You can change the “payable on death” or beneficiary designation on an account in your name (without removing the funds from the account). However, these actions require notice to the other party and should be discussed with your family law attorney.

Note also, if these assets are community property, your change of beneficiary will be deemed to affect only your half of the asset. Your spouse will still own their half.

Furthermore, retirement plans are controlled by federal law, and most will require your spouse’s consent to change the beneficiary to anyone other than your spouse. Certain pensions are only payable to a surviving spouse. Be sure to check with your family law attorney and the plan administrator to determine what changes you can make and when.

Post-divorce

Once your divorce is final, it’s time to update your estate plan and your beneficiary designations on life insurance, retirement plans, and any other assets with “payable on death” or “transfer on death” designations. Check them all. I’ve seen far too many instances of ex-spouses collecting life insurance or IRA proceeds they were never meant to have.

Some living trusts will have a provision in the document that states if the parties divorce, they will be treated as having predeceased one another for purposes of distributions under the trust (i.e., spouse 1’s share of assets would “skip over” spouse 2 and be distributed to the contingent beneficiary in the event of spouse 1’s death and vice versa).

In addition, California law provides that upon the entry of a final judgment of divorce, provisions of wills, trusts, powers of attorney, and other dispositions of property are automatically revoked. However, this does not apply to beneficiary designations and really, why leave your intended heirs with that kind of battle?

Perhaps few mean to ever get divorced, but for more than 50% of us in California, it’s a reality of life. With marriage, the old adage is true — hope for the best but plan for the worst.

Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles, CA. She is also the #1 New York Times bestselling author of “The Dog Lived (and So Will I)” and “Poppy in The Wild.”  You can reach her at Teresa@trlawgroup.net