June 29, 2017

Estate Planning and Divorce

Unfortunately the words "till death do us part" do not hold true with every marriage. Stating the obvious, some marriages end with a dissolution. When it comes to inheritance rights, married, legally separated and divorced have very important legal distinctions.  The below illustrations highlight these nuances.

Assume Hal and Wendy were married in 2000. They purchase a home in San Jose, CA in 2001 and take title as husband and wife as community property. They then have a son named Sam and a daughter named Dana. Wendy dies in 2005 without a will or trust. By virtue of being married to Wendy and the house being community property, Hal inherits Wendy's 50% share of the house. Probate Code § 6401(a). Sam and Dana receive no share of the house.

Now assume that Hal and Wendy legally separate in 2003 but do not divorce. Wendy purchases a Los Gatos condo in 2004 by herself. Again Wendy dies in 2005 without a will or trust. The San Jose home would still pass to Hal because it is community property. However the Los Gatos condo would be split evenly between Hal, Sam and Dana because the asset would be considered Wendy's separate property. Probate Code § 6401(c). The reason being is that an asset acquired after legal separation is considered the separate property of the acquiring spouse. Nonetheless, Hal still has an interest in Wendy's separate property because they were married, though legally separated, when Wendy passed away.

Now assume that Hal and Wendy divorce in 2003 because Wendy  lacked the plow skills that Hal wanted in his bride. The divorce decree awards 50% of the house to Hal and 50% of the house to Wendy. Again Wendy dies in 2005 without a will or trust. In this case Sam and Dana would solely inherit the Los Gatos condo. Since Wendy was not married when she passed away, the Los Gatos condo is Wendy's separate property and passes to her children equally. Probate Code § 6402(a). 
Now finally assume that Wendy files for divorce on June 30, 2005. Wendy dies a day later on July 1, 2005. Since there was no date of legal separation, let alone a judgment of dissolution, Hal would inherit all of Wendy's community property and 1/3 of her separate property. The other 2/3 would be split evenly between Sam and Dana.