Q. What steps can I take to protect my assets from divorce? My fiance refuses
to sign a premarital agreement. Can I be protected without a prenup?
A. Let's face it - while many men consult a divorce lawyer
after being served with dissolution papers, very few do any investigation about
how marriage affects their rights in property
before they marry.
This is unfortunate.
I have found that the only event that may bring a husband-to-be to a family
law attorney prior to getting married is the possibility of entering into
a premarital agreement. Some studies suggest that between 3% and 5% of
unmarried couples adopt one. The vast majority of engaged men and women do not.
While the strongest argument for consulting a matrimonial attorney before
"tying the knot" is possibly asset protection, even if an executed
prenup is not achieved there is another consideration:
Learning early on about the marital property and spousal support rules
applied in your jurisdiction. The same is, of course, true for women.
There Is No Excuse For Failing To Inform Yourself About Divorce,
Before You Marry!
The discussion of a premarital contract, whether or not a prenup is actually
signed, requires both parties to develop a basic understanding of how
divorce related outcomes would change in the face of its provisions.
As is true of most experienced divorce lawyers, I can explain the rules
of property characterization, division of debts, and the principles relating
to spousal support, custody, and child support in between one to two hours.
They are amazingly complex, which is one reason why they trap the unwary
so easily and often.
Yet, in my 30 years of practicing family law, the only times I am asked
to explain California divorce rules are a) for clients who are already
getting divorced or b) when describing what a premarital agreement might
accomplish. I can count the number of pre-marriage consultations, in the
absence of the above situations, I've been asked to give on my fingers.
Of course, as any past reader of the
Enlightened Divorce Blog™ has discovered, I give tips about these issues to men and women throughout
my Blog that might well substitute for a premarriage consult, if you take
the time to figure it out. Problem is, once again, many of my readers
only bump into these tips after their relationship crisis has erupted.
Here's an illustration of a typical situation, about which misconceptions
are common: One spouse owns a residence before he remarries. Title is
held in their name alone - possibly he acquired sole title in his last
divorce. The deed identifies the owner as "John Doe, a divorced man,
as his sole and separate property." Never one to give up on life,
John marries Jane. There is a mortgage on John's house at date of
marriage. One of two things happens next, but probably both:
(1) John pays the mortgage from his earnings, or from both parties'
earnings. In California, it doesn't matter whether Jane actually contributes
her own dollars to the mortgage, property taxes, or insurance. Fifty cents
of every dollar belongs to Jane anyway, in the absence of a prenup; or
(2) Downstream the home is refinanced - or possibly sold, with the proceeds
rolled into the next home (as to which Jane may be placed on title). In
the case of it being refinanced, the lender will require that Jane either
(a) become a co-obligor on the new loan and be added to title so that
the title instrument now reads "John and Jane, husband and wife,
as community property" or (b) she may sign a Quitclaim deed giving
any interest she might otherwise have "to John, a married man, as
his sole and separate property."
Now comes the break up and divorce. Does Jane have an interest in John's
premarital home, and if so how is it quantified?
Avoiding Moore-Marsden Situations
In situation (1), which gives rise to a
Moore-Marsden apportionment, the community estate has acquired an interest in John's separate
property home because the mortgage balance, over time, has been reduced
with community dollars. Jane owns one-half of the community estate. Although
it is commonly supposed that this means that Jane is now entitled to half
of the mortgage reduction from the date of marrying on, that is not exactly
correct. However, if the principal owing has been reduced, and the value
of the home has appreciated, a family law court must reimburse the community
(and therefore Jane) that until the marriage unwinds, neither John nor
Jane gave much thought to the potential consequences, or more likely that
they held mistaken beliefs - for instance, bothmay think that Jane has
no interest because she never went on title.
How could either of them be expected to know how this works without researching
the issue on-line, or consulting with a competent attorney? And what would cause an inquiry in the absence of an impending separation?
In situation (2), in the case of a refinance, John sets the borrowing process
in motion, gets loan approval, and a refi escrow is opened. A day or two
before it is to close, John gets a call from the escrow officer to drop
by with Jane to sign "some papers." Both parties are probably
anxious to close the escrow - maybe they are taking money out and are
buying something else, or paying off their (joint) consumer debt. They
arrive and are handed dozens of document pages to "review" and
sign and initial, "here," "here," and "here."
One will be a transfer deed. That deed will say one of two things: (i)
as to the property, "John, as a married man, hereby transfers, conveys,
and assigns his interest to John and Jane, Husband and Wife, as community
property"; or (ii) Jane, as a married woman, hereby transfers, conveys
and assigns her interest to John, as a married man, as his sole and separate
Problem is - unless specifically instructed otherwise, the escrow officer
(who, by the way, is likely a woman and knows some of the legal consequences
of transfer deeds) will opt to prepare a deed conveying title to the parties
jointly. (This doesn't imply a gender conspiracy; public policy favors
the creation of joint marital interests). Indeed, it may be that the parties
can only qualify for the new loan using both of their credit.
The consequence of a deed from John, to John and Jane, is what matrimonial
law calls a
"transmutation." The home has just become community property and no longer belongs solely
to John. John will be later entitled, in the event of a marital dissolution,
to be reimbursed for the net value of his separate property interest at
the date of the transmutation (execution of the deed). In California these
Family Code section 2640 credits.. Unless Jane agrees to this value, there will be litigation over what
it was, which will include a
"Moore-Marsden" analysis in order to fix the reimbursement due the community for paying the mortgage
on the community dime.
If Jane signs off on the title, there will be no transmutation. The home
will remain John's separate property. Jane nonetheless will continue
to accrue her share of a Moore-Marsden apportionment.
If you find this irritatingly complex, your reaction is entirely reasonable.
One thing is near certain - John had no (correct) idea of any of these
legal consequences, and turning in one direction created one set of consequences
and turning another direction gave rise to a different set. Neither John
nor Jane was in a position to make an "informed decision" about
these transactions. Instead, the law will impose upon them constructive
knowledge and intentions as to each transaction, as a legal fiction.
For John, had he met with a family law specialist, whether he signed a
premarital agreement or not, unintended and unknown consequences would
have been avoided. He would not be blindsided upon the event of his divorce.
He could have made his ensuing decisions differently - and he would have
understood their consequences in real-time.
The truth is that most people refuse to seek counsel about how the law
treats property interests (and spousal support obligations) before making
one of the biggest decisions of their lives. Even though some marital
consequences cannot be avoided without one, investigating how a premarital
agreement might impact your rights is wise and relatively cheap.
Achieving an enlightened divorce can be as simple as having obtained all
the information you need to make intelligent choices, before you marry.
Where is the harm in that?
Thurman W. Arnold, Certified Family Law Specialist
"The Enlightened Divorce Blog™"