A Brief Overview of Premarital and Marital Agreements in California

Premarital and Marital Agreements are permitted in California subject to various laws. These Agreements, whether entered into before or after marriage, allow couples to decide how property , income and assets acquired before or during marriage will be dealt with in the event of a divorce or even death.

If you are contemplating entering into such an agreement both parties should be represented independently by an attorney. This will ensure that the ultimate Agreement complies with the applicable laws governing the Agreement and is ultimately enforceable should it be challenged later. If a couple never enters into an Agreement, either prior to or after marriage, upon divorce, the division of the community assets will be governed by Community Property law.

COMMUNITY PROPERTY

In general, all assets acquired during a marriage are presumed to be community property and thus, would be divided between the parties should they divorce. Separate property of each individual prior to the marriage may also be transmuted to community property during the life of the marriage or at the very least the community may earn an interest in the separate property. Thus, individuals with extensive assets prior to the marriage or people entering a second marriage with pre-existing property rights and/or interests for children may want to consider a Premarital Agreement.

Income earned during the marriage from the efforts of the parties is community property. All employment benefits which come from either spouse during the marriage are considered community property, including but not limited to, retirement benefits, pensions, savings plans, 401K plans as well as sick and/or vacation plans. All of the aforementioned would be divided between the spouses at the time of divorce.

In general the parties will each be entitled to ½ of the community estate at the time of divorce.

PREMARITAL AGREEMENTS

Those considering entering into a Premarital Agreement should start the process well in advance of the wedding date. Both parties need adequate time to draft, review and consider all the effects of the Premarital Agreement. Furthermore, the validity of an Agreement may be contested if there was inadequate time for review and the party was not represented by independent counsel at the time the Agreement was signed. (Ca. Fam. §1615.)

Premarital Agreements allow prospective spouses to agree in advance of the wedding date to change how California laws regarding property, income, and inheritance will be applied to the community property estate upon death or divorce. These agreements are governed by Uniform Premarital Agreement Act. (Ca. Fam. §1600 et.seq.) Broadly speaking prospective spouses are permitted to contract with respect to the handling of property acquired before or after marriage by either spouse. The parties may agree as to how that property will held during marriage; who will control it during marriage and how it will be disposed of upon divorce and/or death. The Agreement may include the subject of spousal support and maintenance as long as certain conditions are met. However, there are limitations as to what a couple may agree to. The Premarital Agreement cannot adversely affect the right of a child to support. They cannot agree to matters that are contrary to public policy or in violation of a criminal statute. (Ca. Fam. §1612.)

MARITAL AGREEMENTS

Even after marriage couples may enter into a Marital Agreement for the purpose of modifying, limiting or preventing Community Property law from applying to certain or all assets acquired before and during the marriage. (Ca. Fam. §1500.) Couples may also enter into an agreement, known as a Transmutation Agreement, to change the character of property from community property to separate property or separate property to community property. (Ca. Fam. §850 et. seq.) Or, couples may want to preserve the estate of a spouse intact from one spouses’ heirs and free from claims of the surviving spouse or the surviving spouses heirs. (Ca. Probate §§140-147.) Couples may not make Agreements which alter their legal relations. (Ca. Fam. §1620.)

If spouses are entering into an Agreement that includes rights after death and/or are affecting one spouses right to pension benefits it is important to consult with an attorney familiar with that area of the law to draft the agreement. There are specific requirements in the Probate Code as well as Federal law which must be complied with.

Unlike Premarital Agreements, spouses owe each other a higher level of fiduciary duty to one another than prior to marriage. A confidential relationship is presumed to exist between husband and wife by virtue of the marital relationship. This relationship imposes “a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other”. (Ca. Fam. §721(b).) Spouses’ duties include, but are not limited to: (1) access to books and records regarding community property; (2) truthful accounting; (3) sharing of benefits and profits; and (4) full disclosure of material facts. (Ca. Fam. §§721 (b) (1-3) & 1100(e).)

If a Marital Agreement gives one spouse an advantage over the other it is presumed that the Agreement is a product of undue influence. Thus, if the spouse placed at a disadvantage later challenges the Marital Agreement, the spouse defending the Agreement has a greater burden of proof. This is different than a Premarital Agreement. There is no presumption of undue influence due to a fiduciary relationship if a Premarital Agreement is later challenged. The defending spouse may rebut the presumption through proof that the contesting spouse voluntarily, freely and knowingly consented to the Agreement with full knowledge of the facts and with a complete understanding of the effect of the Agreement.

CONCLUSION

It is in the best interests of the parties to obtain legal advice prior to entering into any Agreement whether it is a Premarital or Marital Agreement. The Agreements most likely will involve multiple areas of law which are complex. Mistakes or misunderstandings may only become apparent many years later once enforcement is sought. A knowledgeable attorney will help limit any potential mistakes and or misunderstandings.



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