What changes with Estate Planning after a divorce? Can my former spouse inherit my Estate? What happens if someone dies in the middle of a divorce? Who owns community property during a divorce process? How can I restructure my Estate Plan to protect my kids in a divorce? How is property divided in a divorce in California?
By James L. Cunningham Jr., Esq.
Divorce means change.
Most people realize this simple truth, but too many fail to realize how divorce affects everything, including their legacy. The last thing you want to do is make things harder for your loved ones after you pass away. And trust me, a divorce that wasn’t considered in an Estate Plan will make things much, much worse.
Below you’ll find information on divorce Estate Planning in California, but each situation is very different. At CunninghamLegal, we offer expert Estate Planning for the most complex circumstances, along with probate representation when needed. We can also refer you to a specialist who deals with your specific issues. Consider scheduling a call with us.
How soon should I start worrying about changing my Estate Plan if I am contemplating divorce?
As soon as you know that your marriage is ending, it’s time to rethink your Estate Plan. Even though some things can’t be changed while you’re in the middle of a divorce, you’ll want to make plans for when the divorce is finalized, including how you will address your beneficiary designations.
As soon as the divorce is officially completed, you’re going to want to urgently update your Estate Planning documents. Even a delay of a few days could make a difference in who inherits your assets, because of the huge, and partly automatic effect of divorce on Estate Planning in California.
That’s why it makes sense to lay the groundwork ahead of time, so your new Estate Plan can be completed as soon as the divorce is finalized.
How does divorce change your current Estate Plan?
Divorce in California can automatically change your Estate Plan in several important ways.
- It legally (but not actually) removes your ex-spouse from receiving property, being named Executor of your Estate, or from being given Power of Attorney.
- It dissolves any Living Trusts you and your ex-spouse may have created–once the final court order is entered dividing your property.
- It can affect who inherits your property after your death.
Some of these automatic legal consequences may help protect you, but they also leave an immediate uncertainty for your heirs. You must do the proper planning to resolve that uncertainty, avoid mistakes, and protect your legacy.
Before we look further into the ramifications of divorce on your Estate Plan, it’s important to understand property rights in California.
How does marriage or a domestic partnership affect property rights in California?
Marriage determines what property is marital property, or “community property” in California. Remember, when we’re talking about ‘property,’ we’re talking about all assets, including real estate, personal belongings, and cash.
In California, marriages and registered domestic partnerships are the same in the eye of the law when it comes to Estate Planning. Therefore, any time ‘spouse’ is mentioned in this section, you can replace it with ‘registered domestic partner,’ and the information will hold true.
There is no such thing as a common-law spouse in California. There must be a legal union, either an official marriage registered with the state or jurisdiction in which it was performed or a domestic partnership. Regardless of how long a couple has lived together or functioned as spouses, the state only recognizes legally registered unions.
What constitutes community property in California during a divorce?
California is a community property state. However, it’s not quite as simple as spouses co-owning everything. Spouses can (and often do) still have separate property. Let’s take a closer look at property rights in divorce for California residents.
- Community property is anything acquired by either spouse or a registered domestic partner during the marriage, with certain exceptions, including inheritances and gifts.
- Separate property is property acquired before the marriage. However, inheritances and gifts are generally considered separate property, even if they were acquired during the marriage.
Here is an example of California divorce property division:
Jenna owns a car and a boat. She then marries Tom, and they purchase a house and an RV together.
The car and the boat would remain Jenna’s separate property. The house and the RV would be community property, shared equally between the two of them.
Under California law, a spouse inherits all community property in the absence of a Last Will and Testament or Living Trust. But it’s not automatic. Unless a Last Will and Testament or other Estate Plan exists, separate property is split according to “intestate law” in California and is based on which of the deceased’s family members are still alive, with the surviving spouse receiving between one-third and all of their spouse’s separate property.
So, following our example, if Jenna dies, Tom inherits Jenna’s half of the house and the RV. Depending on Jenna’s Estate Plan, he might also receive a portion of her separate property.
Now, imagine that Jenna and Tom were going through a divorce at the time of Jenna’s death. Would Tom still receive all the community property?
Generally, the answer is yes. However, it depends on where they were in the divorce process.
When is a marriage officially over in California?
In California, a couple remains married until the divorce is finalized. It ain’t over until it’s officially over: That means done. Completed. Declared final by the court.
However, the court nevertheless identifies a specific step in the process as the date when any new property ceases to be community property and starts to be separate property. This is the “date of separation.”
Any loans taken out or property acquired after this date of separation are considered separate property.
How does the court determine the separation date during a divorce in California?
The date of separation in California is the date when one spouse told the other they wanted a divorce, and their actions were consistent with the desire to divorce.
How do you define ‘consistent with the desire to divorce’?
Well, you and I don’t. You and your lawyer may decide on one date, and your spouse might decide on another. The judge in your divorce case is the one who determines when this date was.
This means that your property can technically be separate before you realize that it’s separate property (because a judge has not yet determined the official date)!
What a mess, right? As you might imagine, this uncertainty can cause real issues during the divorce process.
For this reason, the court automatically issues a blanket restraining order, called an ATROS.
What are Automatic Temporary Restraining Orders (ATROS) in a divorce, and what protection do they provide?
To prevent one spouse from making a major financial decision that could affect the other, automatic temporary restraining orders, or ATROS, are issued when divorce proceedings begin. The ATROS prevent either spouse from disposing of or moving property without the written permission of the other. This excludes money needed to run a business or for the necessities of life.
It’s not just community property that’s affected by ATROS. Separate property is also included in the restraining orders. This prevents the transfer of funds that should be used in determining spousal and child support.
ATROS remain in effect throughout the entire divorce process, until the final judgment is rendered.
What documents can be changed while a divorce is still in progress?
While a divorce is in progress and ATROS are in effect, you can change the following documents—and yes, you need a qualified California Estate Attorney with experience in these matters to help you!
- You can create, change, or revoke a Last Will and Testament. This is a bit of a tricky area, so remember this: until your divorce is finalized, you cannot disinherit your spouse from community property. If you’re still legally married when you die, and unless you have a Last Will and Testament or Living Trust stating otherwise, your spouse has a legal right to your half of the community property. You can, however, create a Last Will and Testament that leaves your half of the community property and all your separate property to whomever you want.
- You can revoke a non-probate transfer and rights of survivorship, providing you notify the court and your spouse. I can’t go into the details here, but a non-probate transfer is an instrument used to keep assets out of probate. In many cases, however, you will be better served by meeting with a savvy estate planning lawyer to explore all the options because there are no simple answers, and frequently there will be an indirect legal path to get to the desired result. Nevertheless, if you do already have a non-probate transfer established, you can make changes to it while the divorce is ongoing, unless otherwise ordered by a court.
- You can create a new Revocable or Irrevocable Trust, but you cannot fund it. This is part of the groundwork I mentioned in the previous section. You can establish a new Trust during this time, as long as you don’t put any assets into it until the divorce is finalized.
Complicated? You bet.
What happens if I don’t change my Estate Plan after the divorce?
If you have an Estate Plan in place and you don’t get around to modifying it after a divorce, things will get very messy for your heirs when you die, especially with regard to your former community property.
In California, after the divorce is finalized, you and your ex-spouse no longer hold any community property because your ‘community’ has been dissolved. This means that, even if you don’t change your Estate Plan in California, your heirs or people you designate in your Will or Living Trust, and not your former spouse, are legally entitled to inherit your property, including any interest in former community property.
But what, exactly, is your interest in that community property?
Judges in divorce cases often try to resolve things so that one person buys the other out of community property, or the property is sold, and the profits are split between both former spouses, but this isn’t always the case. Sometimes, particularly if minor children are involved, both spouses may remain, for example, on the deed of a house.
In regards to an Estate Plan created during your marriage, a finalized divorce will remove your former spouse from receiving property, being assigned power of attorney at your death, or being named executor of your Estate. If you and your ex-spouse have a good relationship after your divorce, you are certainly able to create a new plan that includes them, but you must take action to do this. It won’t automatically roll over.
If you keep your former Estate Plan in place, you will suddenly, and inevitably, have significant holes in it. For example, if your former spouse was named as executor or granted power of attorney, who will fill those roles now? I think of these as new “blank spaces” in your Estate Plan, which someone will need to fill in when you die. That someone will be the probate court, and you can bet it’s going to both complicate things and cost more for your heirs, including the possibility of a dispute and lengthy litigation process.
What happens to a Living Trust after a divorce?
All trusts require three things: a Creator (Trustor or Grantor), a Trustee, and trust property. Once the court orders a property division between the two former spouses, the trust no longer has assets in it and it evaporates as a matter of law. As soon as that divorce is finalized, that Living Trust blinks out of existence.
Typically, when people establish a Living Trust, it’s to protect the assets that their heirs will receive. Importantly, once the Living Trust ceases to exist, your heirs lose that protection, and you must take action to create a new Living Trust.
Remember, you can create a new trust while the divorce is in process, as long as you don’t fund it. This way, the new trust is in place and can be funded as soon as the divorce is finalized.
The details of the above process are complex – talk to a qualified California Estate Attorney well ahead of time, so they can answer the important questions you may have.
How can an outdated Estate Plan after divorce effect surviving heirs?
There are many ways that an unrevised Estate Plan can cause problems after divorce. Here’s just one example:
Jean has been divorced from her husband, Walter, for ten years. Jean and Walter have two adult children.
The divorce was difficult, and Jean was relieved to be done with it. She’s recently remarried to a wonderful man named Paul. Things are looking up for Jean.
Until she dies in a catastrophic car accident.
Paul has a job, but Jean was the real breadwinner in the house. Thankfully, Paul knows that Jean had a sizeable life insurance policy that will provide him with the financial support he needs. He’s not sure exactly how to go about getting the insurance payout, though, and he’s overwhelmed at the thought of making phone calls while his grief is still so fresh. After all, it’s not like the insurance money is going anywhere.
Two months later, Paul finally calls the insurance company. They tell him that the policy has already been paid out!. Paul checks every bank account he and Jean share and then begins going through paperwork to see if Jean had an account he didn’t know about. Finally, in desperation, he calls Jean’s daughter Lila to see if Lila received the payout by mistake.
She hasn’t. But two days later, Lila calls Paul and tells him she’s located the insurance payout.
It was paid, in full, to Jean’s ex-husband Walter!
Lila tells Paul that she begged her father to do the right thing and transfer the money to Paul, but Walter refused. Instead, he stated that he was the designated beneficiary on the policy, and the money now belongs to him!
Years ago, the court ordered that Walter was not legally entitled to the death proceeds. But because Jean never changed the beneficiary of the life insurance policy, the insurance company that was unaware of the divorce simply paid the death benefit to the beneficiary.
Paul may be able to challenge Walter in court. There’s no guarantee he’ll win; even if he does, it will cost him a lot in fees.
While Paul is dealing with the insurance issue, he’s also tied up in probate court because there’s no Executor named in Jean’s Will.
Everything is more complicated for Jean’s family than it should be because Jean never updated her Estate Plan and her life insurance beneficiary—probably along with the beneficiaries on other accounts she owned.
Is this the experience you’d like to leave for your loved ones? If you’re divorced but haven’t updated your Estate Plan, you may be dooming them to a messy, expensive, and time-consuming process. Taking the time to get your Estate in shape during and after your divorce will save your heirs both money and time.
How can I protect my children’s inheritance in the case of their own divorce?
This is a real concern many people have when they’re creating their Estate Plans. Maybe your adult child is married to someone you don’t have a good feeling about. Maybe your children aren’t married, but you want to protect them in the future.
Go with your instincts and talk to a savvy California Estate Lawyer today about the protections you can build into your Estate Plan for your children as they marry. Most of us have seen marriages that start on a solid footing fall apart surprisingly quickly.
Don’t assume that this isn’t an issue because inheritances are “separate property” in California, even if they’re received during a marriage.
Unfortunately, it’s often not so simple.
Is it possible for separate property to become community property in California?
I spoke earlier about the vital difference between community property and separate property when couples divorce.
But it’s vital to realize that separate property can accidentally and easily become “transmuted,” or commingled and transmuted, and turn into community property. This can happen, for example, if an inheritor even once deposits their whole inheritance into a joint account with their spouse and uses the money for household expenses. If that couple gets divorced, the judge might determine that the inheritance was treated like community property, so it became community property.
This is particularly worrying if you have a less optimistic view of your child’s marriage than they do. You want to protect your children from their own mistakes, especially in the case of something as serious as their inheritance.
Fortunately, savvy Estate Planning can protect your children even after you’re no longer around. For example, through an instrument called an Inheritance Protection Trust, you can leave your children (or any other heirs) money that is designed to protect and inheritance from creditors, predators, and divorce.
How does an Inheritance Protection Trust protect my heirs?
An Inheritance Protection Trust puts your assets into a Trust that continues even after your death. Your heirs are named as beneficiaries of this Trust — that is, they are the only ones who will receive money from it. A Trustee named by you will remain in charge of approving any withdrawals from the Trust and can protect from too much being taken out at once. In this way, your heirs control their inheritance but do not own it — it’s owned by the Trust. In this way, the inheritance you leave will be much less vulnerable in case your heirs get divorced, declare bankruptcy, or are the victim of a scam.
Let’s look at how this works in practice.
Mae and Jack have one son, Carl. Carl is married to Tonya, whom Mae and Jack think is more interested in Carl’s money than she is in Carl. They know that Tonya has asked Carl to buy her expensive cars and jewelry, and they also know that Carl tends to give in to what Tonya wants.
Mae and Jack love their son and only want what’s best for him. So they speak with their Estate Planning attorney and ask how they can protect Carl after he inherits their sizeable Estate.
Among other Estate Planning documents, their attorney recommends an Inheritance Protection Trust. Mae and Jack agree, create the Trust, and name Carl as the beneficiary. They name their attorney as the Trustee (not all attorneys offer this service, but many Estate Planning lawyers do). Their attorney will receive a small portion of their Estate to serve as Trustee.
After Jack and Mae have died, they know that Tonya will not be able to pressure Carl into making major purchases because the Trustee would need to approve them. Indeed, such trusts can be structured so the beneficiary receives a certain amount every month or every year, and the remainder of the Trust is invested to allow those assets to continue to grow. This can protect a child from the influence of a profligate or gold-digging spouse.
There’s no way around it — divorce complicates Estate Planning
No matter what you think of your own marriage or your children’s marriages, you should consider the complications to your Estate Plan should divorce occur, or begin to appear likely. Statistics show us that around half of marriages will end in divorce. You need to plan for such an eventuality in the same way you plan for other possible-though-seeming-unlikely disasters.
In this article, I’ve only been able to touch on some of the key issues involved in divorce Estate Planning in California. If you’re in the middle of a divorce, consult with a qualified California Estate Attorney to determine what steps you need to take to protect your estate—but don’t engage with an attorney who does not specialize in Estate Planning, or an attorney not licensed in California.
In the same vein, if you’re at all concerned about one of your heirs eventually divorcing, only a qualified Estate Attorney licensed in your state can help you structure your assets to protect your loved ones.
If you’re a Californian and you’re looking for a law firm to help you with your Estate Plan, we invite you to consider CunninghamLegal. Please feel free to contact us if we can be of assistance.
What Do We Do as California Estate Attorney Specialists?
The lawyers and staff at Cunningham Legal help people plan for some of the worst and best times in their lives; then we guide them when those times come. Our expert lawyers stand ready to serve you with professional divorce Estate Planning for California residents.
Make an appointment to meet and have a consultation with CunninghamLegal for California Estate Planning or Probate Representation. We have offices throughout California, and we offer in-person, phone, and Zoom appointments. Just call (866) 988-3956, schedule a free call, or contact one of our offices throughout California.
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We look forward to working with you!
Best, Jim
James L. Cunningham Jr., Esq.
Founder, CunninghamLegal
We guide savvy, caring families in the protection and transfer of multi-generational wealth.
