When is a "Spouse" really a Spouse?

California law is very clear as to when 2 people enter into a valid marriage. 

Family Code § 350(a) states "Before entering a marriage, or declaring a marriage pursuant to Section 425, the parties shall first obtain a marriage license from a county clerk."

I was recently reading an unpublished appellate opinion that dealt with this issue. The facts are rather uncomplicated:

"On a Saturday in October 1996, Chandre' D. Shelton (Shelton) and Kennedy Mitchell (Mitchell) exchanged vows before friends and family at a ceremony held at the First Baptist Church of Beverly Hills in West Hollywood, California. Shelton and Mitchell had not gone to the Los Angeles County Clerk's Office to obtain a marriage license. They had not paid the chapel for any services relating to a marriage license. And the county has no record — public or confidential — that they ever obtained a marriage license.

In 2003, Shelton filed paperwork to adopt a child who was in the midst of juvenile dependency proceedings, and she was informed by the Department of Children and Family Services that there was no record of any marriage license. When Shelton asked the pastor who had officiated the 1996 ceremony about this, he replied simply that "God was the witness." Shelton took no further action at that time to obtain a marriage license, and adopted the child on her own.

In 2008, Shelton sued Mitchell for child support regarding the child she and she alone had adopted. Her claim was rejected, and she was again informed that there was no record of any marriage license. Again, Shelton took no further action regarding the marriage's legal validity.
On January 9, 2017, Mitchell died without a will."

If Ms. Shelton was Mr. Mitchell's spouse, she would have various rights regarding Mr. Mitchell's estate by virtue of being the surviving spouse. For example, she would have a claim to all of Mr. Mitchell's share of the community property and at the very least a portion of his separate property. Furthermore, Ms. Shelton would have the highest priority for being appointed the estate's administrator.

One curious argument offered by Ms. Shelton was "the possibility that the license got lost in the mail." The appellate court was unpersuaded. "Shelton's argument about losing the license in the mail misapprehends the process for creating a legally valid marriage because whether a license is lost in the mail after the ceremony has no bearing on whether a license was obtained in the first place."    

Ultimately, the Court of Appeal affirmed the trial court's decision that Ms. Shelton was not Mr. Mitchell's spouse because no marriage license was issued by Los Angeles County.

Of note, Ms. Shelton did not raise the issue of a putative spouse in the trial court so she could not raise that issue on appeal. 

In the Matter of Chandre' D. Shelton And Kennedy M. Mitchell, Los Angeles County Superior Court, case # 17STPB00425.

Community Property and Separate Property Trusts

California is a community property state for marital property purposes. This means that assets considered "community property" are equally owned by the spouses, i.e. each owns 50%. Conversely, assets considered "separate property" are owned 100% by the acquiring spouse.

Occasionally a married prospective client will call and ask about writing a trust for solely themselves. The crux is that while community property results in equal ownership, it does not allow for unilateral disposition unless one spouse is giving it to the other spouse. Smedberg v. Bevilockway, 7 Cal. App. 2d 578, 582 (1935). Simply stated, community property is considered indivisible.

The logical follow-up to this dilemma is to determine what is considered community and what is considered separate property. 

Ahhh, if only life was that easy. 

Determining the characterization of an asset is a labor-intensive chore. It is not as simple as saying if acquired during marriage such is community property or if acquired before marriage such is separate property. Rather, the date of acquisition, the manner of acquisition, the sources of funds of the acquisition, etc. needs to be ascertained to properly characterize the asset. 

Some might say that a transmutation agreement can eliminate the property characterization process because community and separate property can be definitively distilled into an agreement. See Family  Code § 850. That is, in a transmutation agreement the parties can agree to change the characterization of property from separate to community or vice versa. So if the parties have doubt about an asset being community or separate property because of a lack of documentation, they can agree in writing to alter the characterization to eliminate any doubt. However, a transmutation agreement will require the consent and understanding of both parties. Hence, a spouse wanting to do a trust unilaterally will still need the involvement of the other spouse if a transmutation agreement is sought. 

Furthermore, a transmutation agreement can be a legal quagmire if not properly completed. For example, an ex-wife incurred $120,000 in attorney fees to determine the validity of a transmutation agreement. The ex-wife and her ex-husband executed a transmutation agreement with a prominent law firm in San Jose. The transmutation agreement gave the ex-wife a community property interest in the ex-husband's previous separate property business interests. During the divorce proceeding, it was invalidated on the grounds that the ex-husband did not understand the full legal consequences of the agreement. Whoops. The ex-wife sued the law firm for malpractice but her complaint was dismissed for failure to timely file, i..e outside the statute of limitations.  All in all, a complete legal disaster.

Ultimately if a married person is seeking to do a trust unilaterally, they will find few, if any, attorneys willing to take the case given the consequences.          

Joint Bank Accounts

It  is quite common for a husband and wife or domestic partners (same-sex couples/mature couples)  to jointly hold title to a bank account, whether checking, savings or both. For example, John Smith and Mary Smith have a joint bank account at the local credit union. Generally speaking, money remaining on deposit in a joint account at the death of a party belong to the surviving party or parties and not the estate unless there is clear and convincing evidence of a different intent subject to Prob C § 5600. Prob C § 5302(a).

Of note, Prob C § 5600 refers to transfers to ex-spouses, which are considered null and void if the transfer was done prior to or during marriage. For example, John divorces Mary before he passes away. Consequently, Mary would not be entitled to inherit from John the joint bank account per Prob C § 5600. 

Regardless, if John Smith passes away, $250,000 is remaining in the bank account and John is still married to Mary at his death, then Mary Smith would solely inherit this bank account. In order to do this, Mary would most likely have to present to the financial institution:

1. A certified copy of the death certificate
2. Proof of the client's identity, and
3. A copy of the checkbook

What is particularly relevant is that the surviving joint account holder, and not the estate, is entitled to the bank account. For instance, if John had a will directing that all of his estate be given to Aunt Gladys, then the joint bank account would not be included in his estate and thus Aunt Gladys would not be entitled to any portion of that bank account.

There is a common misperception that beneficiaries under a will are entitled to all of the will writer's possessions. This is not true. Numerous assets are not governed by the terms of a will. 

Inheritance Rghts of Children

Individuals often wish to leave part of their estate to a child, whether it is their child, a niece, nephew, grandson, granddaughter, cousin, etc. 

This transfer of assets is not very complicated if the child is considered an adult, namely the child is at least 18 years of age. However, if the child is under the age of 18, he or she is considered a minor. Fam C §6500.

Consequently, in the eyes of the law, minors lack legal capacity in certain aspects. For example, minors cannot consent to their own medical treatment with certain exceptions nor can they contract or exercise the rights and powers of ownership over property. Fam C §§6920-6929; Fam C §§6700-6753. Furthermore children, specifically teenagers, are notoriously imprudent spenders of money and thereby the danger of a teenager squandering their inheritance after a few trips to the local mall is readily apparent.

In light of a child’s legal handicaps and propensity for wasteful spending, there are various options an individual can exercise to ensure that the child’s inheritance is secure.

1. Less than $5k

If the individual is not the mother or father of the child, they may deposit with the child’s parent up to $5,000 that will to be held for the child's benefit until he or she reaches the age of 18. Prob C §§3400-3402.

2. Over $5k

If the bequest is over $5,000, a court may authorize that the money be deposited in a blocked account or may authorize the purchase of a single-premium deferred annuity. Prob C §3413(a). Withdrawals may not be made from the blocked account except on court order and the balance must be paid to the minor at age 18. Prob C §§3300, 3413(a).

3. California Uniform Transfers to Minors Act (CUTMA)

An individual may establish a custodianship for the child’s benefit with a bank or brokerage firm through the California Uniform Transfers to Minors Act (CUTMA). Prob C §§3900-3925. Of particular significance, in a CUTMA account the individual can delay the child’s ability to access the money up to the age of 25. Prob C §3920.5.

4. Trust

An individual may establish a trust for the benefit of the child that can last for the entire child’s life if sufficiently funded. Please see prior postings on trusts on this blog and my website for further detail.

5. Guardianship

If no prior planning has been made for the child’s inheritance, a guardianship of the child’s estate may need to be established. In a guardianship, the court appoints a person to oversee and manage the child’s property. This is probably the worst arrangement because a guardianship requires the filing of an annual accounting with the court which is quite expensive. Prob C §1513.2.

6. College Savings Account

An individual may create an education savings account by either starting a college savings account (See Internal Revenue Code Section 529) or a Coverdell Education Savings Accounts (See Internal Revenue Code Section 530).

Nonprobate Transfers

Certain types of property are not governed by a will. This is particularly important because many people mistakenly believe that property mentioned in a will automatically goes to the named beneficiary in the will. However, this is not the case in the following instances because on death, the property will pass outside of the will and thus probate regardless of what the will dictates.

1. Property held in joint tenancy

Joint tenancy is a form of co-ownership in which two or more persons own property in equal undivided interests. CC §683. For example, a deed which indicates joint tenancy would state, hypothetically, “John Smith and Mary Smith as joint tenants, with right of survivorship." Consequently, a deceased joint tenant's interest vests in the surviving joint tenant or tenants at the moment of death without requiring probate administration. CC §683.2(c). Thus, upon John Smith’s death, his interest would vest with Mary Smith regardless of what John Smith’s will states. 

2. Property held as community property with right of survivorship

This is another method of holding a house jointly between spouses or partners. CC 682.1. The rules that govern joint tenancy also govern community property with right of survivorship. Thus, either method of titling your house would produce the same result in terms of falling outside the scope of a will, namely the survivor would receive the other share of the house.

3. Payable on death bank account (POD)

A POD bank account is an account in which the holder designates a beneficiary as the recipient of the holder’s account upon the holder’s death. Prob C §5140. For example, if John Smith had a bank account and designated his wife as the POD beneficiary, it would typically goes as follows “this account or certificate is owned by John Smith. On the death of John Smith, ownership passes to the named pay-on-death payee, Mary Smith.” Prob C §5203(a)(2) Upon a showing of the holder’s death certificate, the bank will issue a check to the named beneficiary.

4. Totten trusts

A Totten trust bank account is an account in the name of one or more parties as trustee for one or more beneficiaries. Prob C §80. For example, a bank account titled “John Smith, Trustee for Mary Smith” is usually sufficient to create a Totten trust account. The assets in the account belong to the beneficiary, Mary Smith, on the death of the trustee John Smith. Prob C §5302(c). Once again, upon a showing of the trustor’s death certificate, the bank will issue a check to the named trustee. The name Totten trust gets its name from the case in which it was created, In Re Totten, 179 NY 112 (1904).

5. Joint tenancy bank account

Similar to a house held in joint tenancy, in that sums remaining on deposit in a joint account at the death of a joint account holder, belong to the surviving holder and not the estate unless there is clear and convincing evidence of a different intent. Prob C §5600. For example, if the bank account was held as “John Smith and Mary Smith” and John Smith dies, Mary Smith would be recipient of the remaining amount in the account upon a showing of John Smith’s death certificate.

6. Transfer on death securities

Akin to POD bank accounts, a stockholder may designate a beneficiary as the recipient of the stockholder’s stock upon the death of the stockholder. Prob C §§5501-5512. For example, if John Smith held General Electric stock and wanted to transfer it on death to Mary Smith, it would read “John Smith, owner of 1,000 shares of General Electric common stock, transfer on death to Mary Smith.” Prob C §5505. Again, the death certificate would need to be provided before a transfer is made.

7. Life insurance

The named beneficiary of a life insurance policy is entitled to the proceeds of such policy by virtue of the beneficiary designation on the life insurance policy and not by virtue of the decedent's will. Prob C §5000(a). For example, if Mary Smith took out a life insurance policy on John Smith’s life, she would receive the proceeds of such upon John Smith’s death, provided she showed the life insurance company John Smith’s death certificate.

8. Revocable trusts

Property titled in the name of the trustee of the drafter's revocable trust is not subject to probate provided the trust property is left to a beneficiary other than the trust's drafter. Prob C §13050(a)(1). For example, John and Mary Smith create the Smith 2009 Revocable Trust and transfer their home into the trust. The surviving spouse inherits everything and the Smith's close friend Peter is the remainder beneficiary. Upon the surviving spouse's death, Peter would inherit the property free of probate administration but not trust administration.

Omitted Spouse or Child

It is common for a person to write a will or trust (called a testator for wills/settlor for trusts) before he or she marries, or to write a will or trust before he or she has another child when they already have one. The former is known as a “pretermitted spouse” or “omitted spouse” and the latter is known as a “pretermitted child” or “omitted child." The reason why this is important in estate planning is because that pretermitted spouse or child or both is entitled to a portion of the testator’s estate even if the testator has failed to mention the spouse or child in their will. Prob C §§21610-21612; Prob C §§21620-21623. Thus, the people named in the will or trust (the beneficiaries) might have to share their distribution with the spouse or child or both even if the testator did not wish for such.

Spouse

For example, unless an exception applies, a pretermitted spouse is entitled to one-half of the community property, one-half of the quasi-community property and a share of the deceased married person's separate property equal in value to the share that the spouse would have received if the decedent had died intestate, but in no event more than one-half the value of the separate property in the estate. Prob C § 21610. However, per Prob C §21611, there are three circumstances in which the above does not apply:

1. The deceased married person's failure to provide for the omitted spouse was intentional and that intention is apparent from the relevant testamentary instrument (see explicitly disinherited);

2. The decedent made transfers to the surviving spouse outside the testamentary instrument intended to be in lieu of a provision in the decedent's will or trust to provide for the spouse, as shown (a) by the decedent's statements, (b) from the amount transferred, or (c) by other evidence (see large documented gifts); or

3. The surviving spouse signed a valid agreement waiving the right to share in the decedent's estate (very rare circumstance).

Child

In the case of a pretermitted child, if a testator fails to provide by will or trust for a child born or adopted after execution of the will or trust, the surviving child is entitled to take from the estate that share of the decedent's estate that would be the child's share if the decedent had died intestate. Prob C § 21620. Please see this prior posting on intestacy for further explanation. However, as in the case of a pretermitted spouse, a pretermitted child is not entitled to his or her intestate should any of the following occur:

1. The testator intended not to provide for the child, and that intention "appears from the will" (Prob C §21621(a));

2. The testator had a child or children when the will was signed and devised "substantially all the estate" to the other parent of the omitted child (Prob C §21621(b)); or

3. The testator provided otherwise for the child, and the intention that the provisions were made instead of testamentary gifts is "shown by statements of the decedent or from the amount of the transfer or by other evidence" (Prob C §21621(c)).

The conclusion that should be drawn from this is that if you wrote a will or trust before you were married or had additional children after you drafted a will or trust, you should look over it to make sure you do not have an issue with a pretermitted spouse or a pretermitted child because otherwise the California Probate Code might alter your estate plan against your wishes.

Community property

Most mature people have heard the term "community property" thrown around as it invariably comes up in wills, trusts, divorce, bankruptcy, debt settlement, pre-nuptial and post-nuptial agreements. In most basic terms, community property is the area of law that governs the ownership interest of marital property in California. Of note, other states that follow community property law include Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Simply stated, every item acquired during marriage through marital labor by a husband and wife or domestic partnership is split evenly between spouses, 50% is owned by one spouse and 50% is owned by the other spouse. Family Code Section 760. For example, the wages of one spouse earned during marriage, the house that is purchased by both spouses and the car purchased after the wedding are all examples in which the asset are considered "community property."

Conversely, property acquired before marriage and property acquired during marriage that is not the result of marital effort is considered separate property. Family Code Section 770. For example, the Malibu dream house your spouse purchased before marriage, your inheritance from your Aunt and a gift from your golf buddy are all considered "separate property." Any of these aforementioned items is owned exclusively by the acquiring spouse subject to exception.

The reason for community and separate property's relevancy in estate planning is because each spouse can only give away their share of the community property, 50%, but all of their separate property, 100%. For example, one spouse may not give away the entire marital home to whomever if the other spouses opposes. Thus, that spouse could only give away half the house, 50%, to whomever. However, because separate property is exclusively owned by one spouse, that spouse may give away that entire item regardless of the objections of other spouse. For example, a spouse who received a bag of golf clubs as a gift from a friend, could freely give away those golf clubs even if their spouse objected.

As mentioned previously, there are exceptions to the rules of community and separate property. For example, couples are free to change the ownership characterization of community and separate property. Family Code Section 852. This process is known as transmutation. For example, if the spouse who acquired those golf clubs as a gift made an express declaration in writing that the golf clubs were now community property, the golf clubs would then become community property. Furthermore, property can be transmuted from community to separate, separate to community or separate to separate. Although there are special rules for transmuting property. See Family Code Section 852.