Estate Simplification and Protection: Understanding Small Estate Set-Asides and Probate Allowances

Estate planning encompasses more than just distributing assets; it's about ensuring ease and protection for loved ones left behind. This blog explores two critical but often overlooked aspects of prenuptial agreements and estate planning: small estate set-asides and probate family allowances.

Small Estate Set-Asides: Simplifying the Process: The traditional probate process can be daunting, especially for smaller estates. California law offers simplified procedures to bypass this, making asset transfer quicker and less costly. Through a prenuptial agreement, spouses may waive the right to these procedures, but the question arises: why would one do so? The reality is, there's seldom a good reason to waive this benefit, as it offers a streamlined process beneficial in times of grief and financial uncertainty.

Probate Family Allowances: Immediate Financial Support: When a loved one passes, the surviving family might face immediate financial hardships. The probate family allowance is a provision that allows the estate to support the surviving spouse or children during the probate process. Waiving this right might make sense for those with significant independent financial resources. However, for most, maintaining this right ensures that the immediate financial needs are met without undue stress.

Strategic Considerations:

• Waiving these rights might be considered for tax reasons or if alternative estate planning tools are in place.

• However, preserving these rights can provide crucial financial support and simplify estate handling, offering peace of mind during difficult times.

  Estate planning is deeply personal, reflecting each individual's unique circumstances and wishes. Small estate set-asides and probate allowances are essential tools in this process, offering protection and simplicity. As part of your prenuptial agreement discussions, consider how these provisions align with your broader financial and estate plans, always with an eye towards compassion and practicality.

Navigating Estate Planning Together: Intestate Shares and Dower/Curtesy Rights

Prenuptial agreements often spark conversations about trust, commitment, and financial planning. However, they also serve as crucial tools for estate planning, helping couples navigate the future with clarity and peace. This blog deals with two often misunderstood aspects of prenups: the waiver of rights to intestate shares and dower/curtesy.

Understanding Intestate Shares: In the absence of a will, the law steps in to determine who inherits your assets. For married individuals, this typically means the surviving spouse receives a significant portion. Yet, through a prenuptial agreement, spouses may waive this right. Why? It's not always about distrust; many do so to align with comprehensive estate plans already in place, ensuring that assets are distributed according to a well-thought-out plan rather than default state laws.

Dower and Curtesy - A Glimpse into the Past: Though sounding like terms from a bygone era, dower (for wives) and curtesy (for husbands) rights still exist in some forms. Essentially, they refer to a spouse's right to property upon the other's death. In California, these rights are mostly obsolete but can apply in specific scenarios involving real estate outside of community property. Choosing to waive these rights often indicates trust in existing estate plans or a desire for flexibility in how property is distributed.

Why Waive These Rights? Waiving the right to an intestate share or dower/curtesy rights might make sense if you:

• Trust your spouse's existing estate plan.

• Prefer to have your estate matters handled through a more personalized plan rather than state laws.

• Believe in the financial independence of each spouse.

Considerations Before Waiving: However, don't rush. Understand the full implications. You might not want to waive these rights if:

• You want assurance of support through inheritance, especially if there are no specific provisions in place.

• You're concerned about changes in circumstances or relationships that could impact your financial security.

Why get a prenup?

1. Control Over Financial Future: A prenup allows you and your spouse to decide how your assets will be divided in the event of a divorce, rather than leaving it up to state laws or a judge. This maintains control over your finances, no matter what happens.

2. Reality of Change: People change over time, and situations that seem unlikely now can become reality. While trust and love are foundational, a prenup acknowledges the unpredictable nature of life.

3. Protection Against No-Fault Divorce: In a no-fault divorce state like California, marital misconduct (like infidelity) doesn’t affect asset division. Without a prenup, assets are split equally regardless of circumstances.

4. Not Just About Current Assets: A prenup covers future earnings and assets, not just what you have now. It protects against the commingling of assets, ensuring your separate property remains yours.

5. Debt Protection: A prenuptial agreement can protect you from being responsible for your spouse’s debt acquired during the marriage, which is especially crucial if you foresee potential financial challenges ahead.

6. Divorce Can Happen to Anyone: Even if you don’t believe in divorce or can't imagine it for yourself, it’s important to recognize that it’s not always within your control. A prenup ensures you’re protected if your spouse initiates a divorce.

7. Importance Regardless of Wealth: Prenups are vital whether you have substantial assets or not. They ensure that whatever you do have is protected and that divorce proceedings do not become financially devastating.

8. Not a Bad Omen: Getting a prenup is practical, not pessimistic. It’s a way to address financial planning and goals openly with your spouse, often strengthening the relationship by ensuring you're both on the same page regarding future expectations.

Do you get the pension at divorce or when your ex retires?

Divorce can be a complex process, especially when it involves the division of assets like pensions. A recent legal case, "In re Marriage of Belthius," sheds light on an interesting aspect of this division – how a spouse’s career advancements after separation can still impact the divorce settlement.

Understanding the Time Rule: To understand this, we need to know about the "time rule." This rule is a formula used in divorce cases to determine how pensions are divided. Simply put, it considers the time of the marriage in relation to the total time of pension accumulation to calculate what share each spouse gets.

The Belthius Case Breakdown: In the Belthius case, a couple divorced, and their settlement included dividing the husband’s LAPD pension. However, after they separated, the husband continued to work and even got promoted, which increased his pension. The question arose: should the ex-wife benefit from these increases that happened after they separated?

Court’s Decision – A Game Changer: The court decided that, yes, the ex-wife was entitled to a share of the enhanced pension. Why? Because the husband's advancements were partly due to his efforts and experiences during the marriage. This means that even after separating, the contributions made during the marriage played a role in his future success.

What Does This Mean for You?: If you or your spouse have a pension and are going through a divorce, this case shows that not just the pension value at the time of separation, but also future increases due to career advancements, can be considered in the settlement. This is especially relevant for long-term marriages where career growth contributes significantly to pension benefits.

Key Takeaways:

1. The Value of Pensions Can Change: Pensions aren't just valued at the time of separation; future growth can impact their worth in a divorce settlement.

2. Long-term Contributions Matter: The case highlights how contributions during the marriage are significant, even affecting post-separation advancements.

3. Seek Expert Advice: Pension division in divorce can be complex. It's crucial to get expert legal advice to understand your rights and entitlements.

The Belthius case is an eye-opener for many undergoing a divorce involving pension division. It's a reminder that the efforts and contributions made during a marriage have lasting impacts, even influencing future financial benefits. Understanding these nuances can help you navigate your divorce settlement more effectively.

Post-Separation Tracing

The case of Marriage of Simonis (2023) explains the courts approach the tracing of commingled assets in divorce proceedings, particularly during periods of separation.

Background: In Marriage of Simonis, the husband and wife were involved in cattle ranching and farming. The dispute centered around the characterization of cattle and proceeds from crops as community property or the Husband's separate property after their separation. During the separation, husband controlled the assets and commingled the cattle cash and income with his separate property later claiming that the remaining cattle were his separate property.

Legal Challenge: husband sought reimbursement for community debts he paid with commingled funds. He used an aggregate analysis for post-separation payments, arguing that the community debts he paid exceeded the community assets he held.

Trial Court's Decision: The trial court rejected this aggregate approach, adhering to the principles set in See v. See (1966). It required husband to demonstrate that all community property in his possession was exhausted when he paid each community debt, which he failed to do. Consequently, the court denied reimbursement and found the remaining cattle to be community property.

Court of Appeal's Ruling: The Court of Appeal affirmed the trial court's decision, holding that rules used to trace property acquired and expended during marriage are also applicable in characterizing property acquired and expended during a period of separation. The Court reviewed and supported the use of “direct tracing” and “family living expense tracing” (also known as the “recapitulation” method) for both pre- and post-separation asset tracing, as well as for Epstein reimbursement claims.

Key Takeaway: This case underscores the importance of detailed tracing methods in establishing the separate or community nature of assets, particularly when there's commingling of funds. It reaffirms that spouses seeking reimbursement for postseparation payments from commingled accounts must employ traditional family law tracing methods.

• The Simonis ruling emphasizes the importance of detailed tracing methods for both pre- and post-separation assets and debts.

• It rejects aggregate analysis in favor of transaction-specific tracing to establish the nature of assets and liabilities.

• The decision reinforces the requirement for a spouse seeking reimbursement for community debts paid post-separation to demonstrate that community assets were exhausted at the time of each payment.