It was excellent news last year when a pair of Supreme Court decisions allowed same-sex marriage to remain legal in California, and for it to be recognized under federal law.
I’m seeing lots of newly married and soon-to-be-married same sex couples for estate planning. Some of have been together for decades and have well-established ideas about how they want to own property and have it distributed after their deaths. Others are just starting to understand what it means, legally and financially, to be married in California.
Marriage changes, among other things, one’s relationship to one’s property, which is everything one owns.
California is one of just a few states with community property law. This means that whatever one acquires from date of marriage forward, by earnings, belongs half to the other spouse. Whatever one had before marriage and whatever one acquires through inheritance or gift during a marriage, remains one’s separate property. One can deviate from these default rules by making a contract in the form of a pre- or post-nuptial agreement. Each partner/spouse needs to consult with her or his own attorney in order to safeguard the rights of each. (One can also, in a trust or will, give away one’s half of community property to a beneficiary of one’s choosing.)
That’s just the basics. There’s a lot to think about when designing an estate plan for any couple who may have divergent ideas about how to own their property and how to give it away upon death.
Sally and Linda have been together for ten years and have lived together for three. Sally owned a home in Pinole that she bought with her mother years ago. Linda does not own real estate but has a sizable brokerage account and two sons from a previous marriage to a man. They went to reputable family law attorneys for a pre-nuptial agreement and were instructed that if they now want to own Sally’s home together, they should have it re-titled in their names as community property. They did not follow instructions but instead went to the county recorder’s office themselves and completed a deed in their names as joint tenants, which was the wrong from of title. (It’s easy to fix this to state that they own the house as community property, if that’s their intention.)
Now it turns out that they want to make an estate plan and, yet, they don’t really understand how they own the house. Joint tenancy means they both own it 100% and when one dies, the other one already owns it. Linda doesn’t like that idea at all. She wants to leave “her half” to her sons, not to Sally, and she does not want her funds to go to Sally. Nor does she believe she should be obligated to support Sally if Sally ever becomes ill and in need of help.
Sally doesn’t have any children, wants to leave everything to Linda first and then if there’s anything left after Linda dies, to Linda’s two sons. Sally thinks it’s her first obligation to take care of an ill or surviving spouse before distributions to anyone else.
Here these two have a very nice pre-nuptial agreement which states that everything they had before their date of marriage remains separate and that all their future earnings are to remain separate. Yet, they have started on the path of transmuting the house to community property.
More challenging, they are not at all in agreement about what to do with their estate planning. This was not discussed when they did their pre-nuptial agreement, each with their own attorney. And, before getting married, they had not agreed on what should happen to the house and other assets once one or both have died. Or what would happen to proceeds from the sale of a house if the surviving spouse decides to sell it and move elsewhere. Nor did they come to an agreement about whether each would support the other financially in the event one needs help.
These kinds of issues are not unique to same-sex couples.
These are the kinds of issues that need to be understood and clarified before one gets married and before one can begin an estate plan. Right now Sally and Linda are stuck, and it will take some time for them to sort out their thoughts – and emotions – about how each of them feels about taking care of each other financially. That’s quite an additional strain to put on a new marriage.
It may be the case that not everyone who now can be married will choose to be married, once there’s more widespread knowledge of how marriage changes one’s relationship to one’s property.
As with any major change in the law, what we’re seeing is that there’s a learning curve for those who are most affected by the new law.
