In a previous post “‘Til Death Do Us Part,” we looked at the importance of estate planning, with a special emphasis on blended families. This follow-up post focuses on property ownership.
When you say “I do,” you are agreeing to a legal “back story” that you may not fully appreciate until many years down the line. In California, the definitions of community property and separate property are important to understand.
Separate property is assets:
- owned by a spouse or domestic partner before marriage or registration of domestic partnership;
- acquired by gift or inheritance; or
- acquired while separated.
Community property covers all other property acquired during marriage or domestic partnership, such as earned income. (Note: For domestic partnerships, federal laws do not treat community property the same way that California law does.)
Straightforward, right? Well, not really. Separate property can be converted to community property (and vice versa) by a written agreement or commingling of assets (i.e., using community property funds to fix a house that was meant to be separate property).
Classifying what is separate property and what is community property can be easy or challenging – it depends on the family. There are a couple of ways that the classification can be handled:
- Prenuptial Agreement – Before marriage, you can enter into an agreement that specifies what is community property and what is separate property.
- Postnuptial Agreement – After marriage, you can enter into an agreement that specifies what is community property and what is separate property.
Although most people hire lawyers to draft these agreements (and commonly, each person has separate legal representation), you can also come to an agreement yourselves. If you take this route, the agreement must be in writing and you must keep meticulous records (I’d advise hiring an accountant) to keep your property separate. You must not commingle (mix) separate and community property funds if you want to preserve the character of each asset.
These written agreements, and at the very least your verbal agreement as to what is separate property and community property, are the foundation of your estate planning. Only after you have decided which is separate property and which is community property, can you decide on the strategy for your estate plan. For all separate property, you can wholly decide who will get your assets. For community property, you can decide who will get your 50% share.
Most estate planning attorneys (including me) do not draft prenups nor post-nups. Family lawyers do this type of work and the couple typically should get separate counsel (if you need a referral of family lawyers who draft marital agreements, I would be happy to provide them).
The estate planning attorney represents the couple, and the couple must agree that there is no conflict of interest. As you can imagine, if the couple is not in agreement about what is separate property and what is community property, estate planning can become sticky and the estate planning attorney must tread carefully. If a conflict arises, the couple may need to seek independent counsel.
I ask clients to decide before our meeting what is separate property and what is community property. However, if a couple would like to meet to get some guidance with regard to property ownership and estate planning, I am happy to oblige.
The questionnaire from my office can help guide your discussion, although the single best tool any blended family can use is communication.