Who Needs A Prenup?

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letsmakesomething
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Who Needs A Prenup?

Post by letsmakesomething »

Live in CA, attempting to be realistic and plan for the future. Everyone hopes for the best, but it would not be wise in my opinion if you are not prepared for the worst. While I understand the overall divorce rate is over 50%, I also understand that number goes down significantly if those getting married choose to wait(I fall into that category) vs getting married at 19. I have about a quarter of a million dollars in assets, she does not have any assets.

1. Has anyone been in this situation and did you have a prenup? If so how did that go? Advice is appreciated.

2. Is there a way around getting a prenup in terms of documenting what was in the account prior to marriage or does the fact CA is a community property state wipe that thought process out? (I understand sharing what is earned during the marriage, that makes sense to me, what doesn't make sense is sharing what was accumulated prior to the marriage).

3. Can a prenup include waiving the right to alimony?

I am not interested in the "if you are thinking about this you shouldn't get married" comments. Realistically people do change over time and 75% of divorces are initiated by the wife. Ideally we grow and change together. The ultimate goal is to have a long happy marriage, but being prepared is in everyones best interests in my opinion. I want to be very clear up front so we both are on the same page and hopefully we stay together and this never comes into play.

Thanks for any inights.
sscritic
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Re: WHO NEEDS A PRENUP?

Post by sscritic »

1) she had more, I had less, but I had income, and she didn't. no
2) yes or no (I love question or not question questions)
3) I believe not. I know you can't give your spouse the right to murder you. It's that sort of thing.

P.S. In CA.
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JamesSFO
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Re: Who Needs A Prenup?

Post by JamesSFO »

So where most people in CA with prenups run into trouble is they start co-mingling assets thus defeating the plan set forth in the prenup and/or keeping what would otherwise be separate property w/o a prenup separate.
sscritic
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Re: Who Needs A Prenup?

Post by sscritic »

Search for transmutation property CA
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

Yes, there is. It is called an irrevocable trust. You would need, prior to marriage, to transfer the assets to your irrevocable trust BEFORE marriage. You need to see an estate or elder law attorney for this. It is not that expensive and worth every penny. Just one more thing to remember, never, and I mean never, place any money into the trust after marriage. If you do, you can, in theory, make the holdings in a trust marital property instead of separate property. Many people with means, men and women, do this now in lieu of a pre-nup. The talk is awkward and the one with lesser means will always have some sort of resentment from this conversation, whether you do it or not. Irrevocable trust is the best way to go. Should, at a later date you wish to break the trust, it is now possible inn California when both trustees and the beneficiary (you) agree to do so. Should you not do a pre-nup or irrevocable trust and you commingle the money, it becomes automatically 50% hers after marriage. Also, if you hide anything from her within the pre-nup (I.E. hiding assets), most judges will invalidate the pre-nup and it will be rendered useless and the wife will receive 50% of the money. Hence, to be sure, this is never an issue, most now go with a irrevocable trust. They are iron clad and always held up in court as long as the terms of the trust are always in effect and you NEVER transfer any funds or assets into the trust during your marriage.
sscritic
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Re: Who Needs A Prenup?

Post by sscritic »

For the value (or not) of a pre-nup in CA, read about the McCourt's divorce.
In a 100 page opinion (and yes, that is a very LONG opinion), the Judge tossed out the prenuptial agreements. The Judge ruled that the evidence showed that Frank & Jamie McCourt never fully agreed on any terms regarding the Dodgers, and that each has a mistaken belief about the alleged differing prenuptial agreements. The result is that the Dodgers will not be divided pursuant to any prenuptial agreements between Frank & Jamie McCourt.
And what did it cost to decide that the prenup wasn't valid (and a few other issues)?
The McCourts could spend close to $35 million in legal fees and costs, based on figures included in filings in Los Angeles County Superior Court.
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

Hence the reason for a irrevocable trust instead of a prenup.

FYI:

http://irrevocable-trust.ultratrust.com ... ement.html
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zebrafish
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Re: Who Needs A Prenup?

Post by zebrafish »

If you're going to go to all this trouble, why get married in the first place? Just a question.
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

I guess the problem is both people need to work at a marriage in order for it to be successful. This is what people did for generations. Now, with no fault divorce, some, not all, people go in and out of divorces like a change of clothes or a new house. It is especially so if and when one spouse has significantly more than the other. They could play the game and marry then, in a few years, the one with lesser financial means could file for divorce. Might as well as plan for the worse case scenario. I know it is not good to talk or think about, but it is best to cover all sides of the table. An irrevocable trust enables the ones with financial means to do so. Obviously, if both start out with nothing and grow it into millions, then that is a completely different story.
reggiesimpson
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Re: Who Needs A Prenup?

Post by reggiesimpson »

In general if the prenup is considered to onerous (like circumventing that states divorce laws) the entire prenup can be thrown out and you are back to square one. You need an experienced atty to write up an effective one.
RenoJay
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Re: Who Needs A Prenup?

Post by RenoJay »

1. Has anyone been in this situation and did you have a prenup? If so how did that go? Advice is appreciated.
Yes, got a prenup. It definitely put a bit of a damper on the proposal. The proposal was romantic and a surprise to her. But then I suggested we don't mention it to anyone for a while. She pretty quickly figured out that I wanted to discuss the prenup before spreading word of the proposal/acceptance. For a while, our conversations became much more businesslike rather than romantic. In my case, there was a massive wealth disparty so it had to be done. I suggest making sure your future spouse hire a lawyer to represent her (am I just assuming it's a her or did I read that in the original post??) so there is no accusation if you later get divorced that you shoved a prenup down her throat that she did not understand.
2. Is there a way around getting a prenup in terms of documenting what was in the account prior to marriage or does the fact CA is a community property state wipe that thought process out? (I understand sharing what is earned during the marriage, that makes sense to me, what doesn't make sense is sharing what was accumulated prior to the marriage).
We documented, within the prenup and subsequent renegotiated post nup, who owned what. More importantly, during the marriage we've kept "my assets", "her assets" and "our assets" in accounts which have been designated as such. It's the co-mingling of assets after the wedding day that gets people into trouble.
3. Can a prenup include waiving the right to alimony?
I've spoken to a lawyer who said this clause may not be enforceable. I'd suggest putting in some reasonable allowance for alimony.
Topic Author
letsmakesomething
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Re: Who Needs A Prenup?

Post by letsmakesomething »

comptalk

Thank you for all of the useful information. If going with an irrevocable trust, can retirement accounts be placed in such trust ie IRA, 401K, in additional to individual retirement accounts? The problem then becomes you are no longer able to direct/reallocate such assets? Is that correct?

Also, who names the beneficiary?
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

Unfortunately no. There is no way to protect a retirement account. A retirement account is always considered a marital asset. You can setup the beneficiaries when forming the irrevocable trust. The beneficiary is usually you. You also want to make sure it is a grantor's irrevocable trust so you will be taxed at your personal rate and not the trusts 39.6% rate. Once formed they are iron clad as long as you do not co-mingle funds.
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letsmakesomething
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Re: Who Needs A Prenup?

Post by letsmakesomething »

Might be a dumb question, but if I am the beneficiary, I cant also direct the investments in the revocable trust correct? How would I ever gain access to the funds at a later date?
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

The trustee will write you a check for as much as you need. You would still be the sole 100% beneficiary, so the money is still technically yours, just a trustee manages it. You can name a family member or someone else you trust to be the trustee. Though, it is recommended you have at least two trustees. The trustee directs the investments, not you. However, again, if you name someone you trust as the trustee, in theory, you can tell them the types of investments you want the money invested in.

In addition, should you ever need to break the trust, it is possible if all, the trustees and beneficiaries agree to do so and full control reverts back to you. However, doing this during marriage would make the funds automatically marital property. Doing during after a divorce is finalized and approved and you are good to go. Just remember, the trust would need to file a tax return every year it earns or receives 600.00 a more. If it does not earn 600.00 or more, then no tax return needs to be filed. Mostly, you can include this on your own tax return. Not hard at all to do. This can be done through Turbotax or your accountant and should not cost more to include with your annual filing.
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tainted-meat
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Re: Who Needs A Prenup?

Post by tainted-meat »

I'm getting married next year. No way I would sign a pre-nup or ask my significant other to sign a pre-nup unless either of us were worth a few million.
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

With a trust setup, you do not have to have the conversation. Now, let's say a person, worth 500k - 1 million doesn't do a pre-nup nor a trust and goes with faith that all works out until death do us part. Perhaps it does, perhaps, it doesn't. People can now leave marriages just because one changes their mind. Usually, the woman is the one who changes her mind. Divorce proceedings now start 25 years down the line. That 500k - 1 million has grown to 8.5 million dollars. Since it wasn't protected, the money is part of marital distribution and 50% goes to the former husband and 50% goes to the former wife. Also, since on paper you, the one with the 8.5 million nest egg, looks like multi-millionaire also has to pay alimony based off of that amount. You now have to, for set number of years, have to pay alimony to your ex-wife. If that money was protected in a trust, it would not be considered as your asset, thus it would not be factored in to the divorce settlement nor possible alimony. In effect, you the one with the nest egg and your spouse, the one without a nest egg, would start out on equal footing at the same level. There is no longer a huge gap in financial means for either party. Anything you grow together is fair game, however, what you earned prior to marriage is yours and she or he should not have any rights to that money. They were not there when you earned it, why place it in harms way and gamble?
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letsmakesomething
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Re: Who Needs A Prenup?

Post by letsmakesomething »

If as you explain you and the trustee mutually decide to dissolve the trust while still married (hypothetically something catostrophic happens and you need access to the funds), those funds then become marital property, correct?
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

Yes, that is correct. However, you can, at any time, take a distribution of funds from the trust. Therefore, only that money that is transferred out of the trust would then become a marital asset. Just remember, never transfer any unused funds back into the trust. If you do, you open the trust to the co-mingling argument.

Example. You have 250k in the trust. You need 20k for a down payment on a home. No problem. You request your trustee to write you a check from the trust account's checkbook for 20k and deposit it to your own personal checking account. No co-mingling argument. Your trust is safe and sound.

Example 2. Let's say, you want to save more money in the trust after marriage so you transfer 10k in. You have now broken the security of the trust and it is now, possibly, not guaranteed, marital property. Never do this.
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letsmakesomething
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Re: Who Needs A Prenup?

Post by letsmakesomething »

What I have deducted is anything in a taxable investment account (obviously the 401k and Roth IRA do not qualify) could go into the irrevocable trust. Seems to be the best option given all of the valuable information you have shared with me. Does that sound about right?

1. How much does one cost to set up?
2. DO you happen to have one?
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Noobvestor
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Re: Who Needs A Prenup?

Post by Noobvestor »

zebrafish wrote:If you're going to go to all this trouble, why get married in the first place? Just a question.
Moving in with someone, throwing a wedding, combining all your belongings, deciding on children ... those are no trouble at all, right? :twisted:
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

There may be ways to leave the money in the retirement accounts and make the beneficiary the trust. In some states, that may acceptable. You need to check with a competent estate attorney on that. I do know, all the money in the retirement accounts earned BEFORE marriage are considered separate property by default. Updating the beneficiary to the trust and making that acceptable depends on state laws and how the trust is structured. You would need to see a competent estate lawyer for this. Yes, I do have one. I've had one setup for some time now. Shouldn't be more than a couple a grand or so to setup.
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

Noobvestor wrote:
zebrafish wrote:If you're going to go to all this trouble, why get married in the first place? Just a question.
Moving in with someone, throwing a wedding, combining all your belongings, deciding on children ... those are no trouble at all, right? :twisted:
Much easier to care for children when YOU are the one controlling YOUR money.
sscritic
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Re: Who Needs A Prenup?

Post by sscritic »

comptalk wrote: let's say a person, worth 500k - 1 million doesn't do a pre-nup nor a trust and goes with faith that all works out until death do us part. ... Divorce proceedings now start 25 years down the line. That 500k - 1 million has grown to 8.5 million dollars. Since it wasn't protected, the money is part of marital distribution and 50% goes to the former husband and 50% goes to the former wife. Also, since on paper you, the one with the 8.5 million nest egg, looks like multi-millionaire also has to pay alimony based off of that amount.
Sorry this doesn't compute. In a community property state, if 8.5 million is considered community property, then it is divided 4.25 million each. There is no "on paper" other than on paper they each have 4.25 million. In most cases there would be no alimony, unless one party had a large income that had supported a particular lifestyle for both of them. On the other hand, with limited income, each would be expected to live off the income generated by the 4.25 million.

Alimony is about lifestyle and income, not wealth, not when the wealth is equal.

I know: been there done that. In the end, she was worth more than I was (we each had separate property as well) and there was no alimony going either way. (not 4.25 in our case, but more than 1.0) Actually, the incomes were not equal (SS is separate property, as is the non-community portion of pensions), but there was still no alimony.

Many states expect the parties to get a job and work after a divorce (and a suitable time).
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

Not sure how it doesn't compute. Why, if the person earned the money himself or herself be forced to share the money with an ex-spouse when they did not do anything to contribute to the earnings of those funds? I understand and agree if the money was earned together or from zero up, then fine, it is fair game. However, if a person earned the money BEFORE meeting said future spouse, then that person should be able to keep that money separate. Unfortunately, life happens, and money sometimes gets co-mingled into marital assets. A trust protects against this. No one can foresee the future, and the sad fact is that marriages end all the time. There is no reason why you cannot protect yourself the best as possible. I am sorry that some feel this is not right nor fair to the spouse who has less, but there is no emotion in money. Should two people go through a bitter divorce, the one with the trust would be kissing the floor and jumping for joy knowing that their money is safe. It is not pretty or nice to talk about, but money changes people. For better or worse, unfortunately now a days does not mean the same as it did 20 + years ago. With no-fault divorces able to be filed, then so should protecting the money and assets a person worked so hard to build. I've heard of people, men and women, being destroyed due to divorce. While women's income is on the rise, it is usually the man who gets destroyed financially. This does not have to happen. If a person of means doesn't protect themselves, then it is on them. But there are options available.

In terms of alimony, if, one lives a high life due to their income and/or their trust, a judge can and has, in the past issued alimony to the spouse which earned less or little income. Alimony is for lifestyle and/or fixed payments in order for the person to live the sort of life they were accustomed to during the marriage. This is why it is so important to protect the house. The house, in this case, is the nest egg.

The term on paper means that the funds or securities or assets have not been exercised yet. In order to get to the 50% distribution of marital assets, this usually has to be broken in order to satisfy the divorce degree. A trust would prevent this from ever happening. There is no reason to have to live on half, if the money is already yours.
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Re: Who Needs A Prenup?

Post by awval999 »

I'm definitely not a lawyer but I just have to say a few things because I've consulted a lawyer about a pre-nup, because I'm considering getting married. Albeit, I will say divorce laws are state specific, so CA may be different than NY than CT than OH.

A spousal support waiver is enforceable.

You can protect future income/retirement accounts --- like a 401k from divorce as long as they are not co-mingled.

The only unenforceable things are items relating to children, childcare, child support.
sscritic
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Re: Who Needs A Prenup?

Post by sscritic »

comptalk wrote:Not sure how it doesn't compute. Why, if the person earned the money himself or herself be forced to share the money with an ex-spouse when they did not do anything to contribute to the earnings of those funds? ...

The term on paper means that the funds or securities or assets have not been exercised yet. In order to get to the 50% distribution of marital assets, this usually has to be broken in order to satisfy the divorce degree. A trust would prevent this from ever happening. There is no reason to have to live on half, if the money is already yours.
1) the presumption was there was no trust. Your words: "Since it wasn't protected"
2) I said nothing about fair.
3) You said the 8.5 would be split (I agreed)
4) You said all 8.5 would be counted as belonging to one party.

Read 3 and 4 again. Either all 8.5 is given and counted as belonging to one party or 4.25 is given and counted as belonging to each party.

What you said about alimony just repeated what I said. Given equal wealth and equal income, there will be no alimony. Read 3 again.

P.S. If you have separate property before marriage and keep it separate, it stays separate in CA (perhaps not in Delaware, but the OP doesn't live in Delaware). If you keep the separate property and its earnings (also separate) separate, then it won't be divided; no trust is required. In that case you keep the 8.5, but you are then likely to owe alimony if you never saved a penny during the marriage and each of you split the zero community assets equally at zero each. Again, I lived it. How many times have you been divorced in CA? How many divorces have you handled as an attorney in CA? Maybe you know about CA law, but what you write doesn't square with what I have experienced.
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

Yes, you are correct on the amount of money prior to marriage is yours as long as it is not co-mingled. However, you'd be surprised to learn how funds are co-mingled by mistake. Once done, it cannot be undone. In addition, the growth of those funds during marriage, however, is marital property. So, if you have 500k before marriage, and it grows to a few million or more, that growth is marital property w/o a trust.
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Re: Who Needs A Prenup?

Post by sscritic »

comptalk wrote: In addition, the growth of those funds during marriage, however, is marital property.
Can you cite CA law for that? I asked about your experience with CA law for a reason. One reason is that you give answers that I believe to be incorrect for the OP. The fact that you use the term marital property rather than community property makes me think you don't have experience in a community property state.
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

I'm currently reside my primary residence in an equitable property state. However, community property states are worse. I do not have cite this. What I did type is known fact whether your in an equitable or community property state. I did verify this with my accountants and attorneys, as I do have another property in a community property state.
sscritic
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Re: Who Needs A Prenup?

Post by sscritic »

I bet that state isn't CA. If it is, you may need another attorney. Your facts aren't facts.
On another note relating to separate property: if any money is earned from that property, it is considered separate.
http://www.maggiolawfirm.com/2009/11/un ... perty-law/

Here is a reference to the Code so you can look it up yourself:
Property acquired before marriage is the acquiring spouse's separate property, as is property obtained during marriage that can be traced to a premarital acquisition. [Ca Fam § 770(a)(1) & (3) ("rents, issues and profits" of SP are SP)
http://www.kinseylaw.com/clientserv2/fa ... ision.html

I will be extra kind and give you a link to show your attorney.
http://www.leginfo.ca.gov/cgi-bin/displ ... le=770-772

It's really easy to read, so I won't read it for you. You can click and read for yourself.

P.S. Yes, when you claim to know the law, you do have to be able to cite it. Otherwise people will think you are just blowing smoke.
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Re: Who Needs A Prenup?

Post by VictoriaF »

comptalk wrote:However, you'd be surprised to learn how funds are co-mingled by mistake. Once done, it cannot be undone.
I am curious. Let's say we have a couple, A and B--we'll keep them gender neutral. A and B enter marriage with approximately equal assets ($Xa ~ $Xb), without a prenup and without irrevocable trusts but with an intention to keep their pre-marital assets separate.

During marriage, A makes a mistake of commingling the funds by a trivial amount. Later A and B get divorced. A has $Ya in personal funds but they are tainted by commingling. B has $Yb in uncommingled funds, and a shrewd lawyer. $Ya ~ $Yb ~ $Y. Will A end up with $0.25Y and B with $0.75Y? (Minus the lawyers' fees, of course.)

Victoria
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

sscritic wrote:I bet that state isn't CA. If it is, you may need another attorney. Your facts aren't facts.
On another note relating to separate property: if any money is earned from that property, it is considered separate.
http://www.maggiolawfirm.com/2009/11/un ... perty-law/

Here is a reference to the Code so you can look it up yourself:
Property acquired before marriage is the acquiring spouse's separate property, as is property obtained during marriage that can be traced to a premarital acquisition. [Ca Fam § 770(a)(1) & (3) ("rents, issues and profits" of SP are SP)
http://www.kinseylaw.com/clientserv2/fa ... ision.html

I will be extra kind and give you a link to show your attorney.
http://www.leginfo.ca.gov/cgi-bin/displ ... le=770-772

It's really easy to read, so I won't read it for you. You can click and read for yourself.

P.S. Yes, when you claim to know the law, you do have to be able to cite it. Otherwise people will think you are just blowing smoke.
Not even going to bother responding to your posts anymore. It's a fruitless endeavor.
sscritic
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Re: Who Needs A Prenup?

Post by sscritic »

To Victoria:

Don't believe comptalk on CA law. If you can trace the source, it can still be considered separate.
Comingling occurs when a spouse's separate property is mixed or combined with the other spouse's separate property, or with marital property. For example, when a spouse deposits marital funds into their separate fund account, those funds become comingled. The spouse must be able to "trace" the funds back to their separate property source to prove that some of the funds in the account at the time of divorce are separate.
http://www.cadivorce.com/california-div ... -tracings/
When it comes to dividing the property in your divorce, the only way you can claim the money you put into the bank account as your separate property (so your spouse won't get a share of that money) is to "trace" or follow the funds back to you. You'll need detailed records - deposit and withdrawal slips, bank statements, etc. - to show how much of the money is actually yours.
http://family-law.lawyers.com/divorce/C ... vorce.html

I could give many more references to dispute comptalk's bold assertions.

Google ca comingling of property. Another key term is tracing.
Last edited by sscritic on Thu Dec 20, 2012 9:08 am, edited 1 time in total.
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

VictoriaF wrote:
comptalk wrote:However, you'd be surprised to learn how funds are co-mingled by mistake. Once done, it cannot be undone.
I am curious. Let's say we have a couple, A and B--we'll keep them gender neutral. A and B enter marriage with approximately equal assets ($Xa ~ $Xb), without a prenup and without irrevocable trusts but with an intention to keep their pre-marital assets separate.

During marriage, A makes a mistake of commingling the funds by a trivial amount. Later A and B get divorced. A has $Ya in personal funds but they are tainted by commingling. B has $Yb in uncommingled funds, and a shrewd lawyer. $Ya ~ $Yb ~ $Y. Will A end up with $0.25Y and B with $0.75Y? (Minus the lawyers' fees, of course.)

Victoria
Really depends on how savvy the lawyer B has. If lawyer B is diligent enough to go through all the records and find the evidence of co-mingling, then an argument may be made on the basis of co-mingling of assets from that point on, not prior to the co-mingling.
sscritic
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Re: Who Needs A Prenup?

Post by sscritic »

Tracing funds has nothing to do with whether the funds were commingled before or after commingling. I am not even sure what commingling before the commingling means.

A and B have a joint account with $1 in it. A adds $1 million of separate property. B adds $1 to it. A adds another $1 million to it. Both millions added by A can be traced, even if one was "before" the commingling and the other after.
comptalk

Re: Who Needs A Prenup?

Post by comptalk »

To help the slow poster here, the legal definition of commingling of funds:

Spouses or business partners may commingle without a problem, except that a spouse may thus risk turning separate property into community property (transmutation), and a business partner may have to account to the other. However, trustees, guardians, or lawyers holding client funds, must be careful not to commingle those funds with his/her own, since commingling is generally prohibited as a conflict of interest. Use of commingled funds for an investment, even though it benefits both the trustee and the beneficiary, is still improper. Inadvertent commingling or temporary commingling (say, upon receipt of a settlement check in which both the client and attorney have an interest) require prompt separation of funds and accounting to the client or beneficiary. To avoid commingling, trustees, lawyers, guardians and those responsible for another's funds set up trust accounts for funds of another.

Now, to what I was writing about was about the growth of said funds. Person A and person B each had a separate account and one joint account. The joint account earns interest or is invested in funds. Person A transferred money from their separate account to the joint account. That amount of money is now commingled and is a marital asset. The interest or growth of that money would only be divided from when the money was transferred from his separate account to the joint account. I am hope I am clear on this. This is case law in my state.
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Re: Who Needs A Prenup?

Post by sscritic »

comptalk wrote: Now, to what I was writing about was about the growth of said funds. Person A and person B each had a separate account and one joint account. The joint account earns interest or is invested in funds. Person A transferred money from their separate account to the joint account. That amount of money is now commingled and is a marital asset. The interest or growth of that money would only be divided from when the money was transferred from his separate account to the joint account. I am hope I am clear on this. This is case law in my state.
Agreed, but I didn't see Victoria's question mention growth. It is reasonable to assume that each of her accounts would consist of both additions from separate and community property (or only one would in her example). Thus, to answer her question, you would have to be able to separate the growth from the contributions, assuming you could trace the separate contributions to their separate sources. In CA, the state of the OP's question, the tracing matters, but perhaps not in Victoria's. It is all state specific.
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Re: Who Needs A Prenup?

Post by sscritic »

Actually, I am not sure I agree.

A has $1 million in separate property. A accidentally adds $1 of community money. The account doubles to $2,000,002. When properly traced, I would guess (just a guess) that $2 million belongs to A as separate property and only $2 is community property; $1 million of the growth is separate and only $1 of the growth is community. In other words, the growth is community to the extent that the proportion of the contributions are community.

Remember, Victoria's assumption was
During marriage, A makes a mistake of commingling the funds by a trivial amount.
Let the trivial amount be $1.

Edit: I am assuming that Victoria is not worried about adding $1 of separate property to a joint account.
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JamesSFO
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Re: Who Needs A Prenup?

Post by JamesSFO »

To me the bottom line is that where people mess this up (prenup or not) is in the commingling.

For example a good friend (CA attorney) and his wife (also a CA attorney) have a ~15 year old prenup that stated the then wife's property would remain separate (house + 401K). However, they've ended up with only a single checking account and her separate property have ended up being mingled around (bought a 2nd house as community property using proceeds from first), wife stopped working with kids, husband now has all income and much more substantial 401k, etc.

Theoretically you _might_ be able to trace some of this back, but as a practical matter its going to be hard after 15 years of not doing what you said you were going to do.

(Variation of this happened with my grandparents (2nd marriage for both) where they had a prenuptial agreement and stayed married for another 30+ years, 2-3 moves, changes in who was employed, none of the terms really made sense after that time and again commingling would have been a problem.)

All of this is not to advocate against getting a prenup but to force you to think through what steps you are really going to take not just in year 1, but in years 2+ to keep your separate assets separate.
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Re: Who Needs A Prenup?

Post by Rodc »

1. Has anyone been in this situation and did you have a prenup? If so how did that go? Advice is appreciated.

I was in very much the same situation, very early middle age (or late not yet middle age). Net worth in some combination of cash, home equity and retirement accounts. I also had higher income and she had a young daughter who we would raise together. (Standard advice for step-dads is she would raise the child and I would stand back sort of uncle-like, ie I would not do much in the parenting department, which is stupid advice. In for a nickle, in for a dime, no half measures, be married all the way, full partners or don't get married as far as I'm concerned.

Did not get a pre-nup. Thought about, knew the risks, but did not believe half measures were in our best interests. Note: OUR best interests, not necessarily my best interests (well ultimately I believed my best interests were in making this work, not in trying to build a back door to use just in case. Focus of decision making was on the unit, not the parts.

That said, I understand other reasonable people might very well have gotten a pre-nup. If we both had kids might have made a difference but I was only putting myself at risk, not kids.


2. Is there a way around getting a prenup in terms of documenting what was in the account prior to marriage or does the fact CA is a community property state wipe that thought process out? (I understand sharing what is earned during the marriage, that makes sense to me, what doesn't make sense is sharing what was accumulated prior to the marriage).

would seem easy enough to document what you have at any given point in time.
Last edited by Rodc on Thu Dec 20, 2012 11:13 am, edited 1 time in total.
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Re: Who Needs A Prenup?

Post by VictoriaF »

sscritic wrote:Edit: I am assuming that Victoria is not worried about adding $1 of separate property to a joint account.
I was thinking of commingling as a drop of poison in a large pot of borscht. For example, A may have made a Roth conversion and inadvertently used some marital (community) cash to pay taxes. If it is possible to trace and separate commingled money it's not as bad as I thought.

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Re: Who Needs A Prenup?

Post by sscritic »

You do have to do what you said you were going to do. I had no prenup, but in my second marriage, we both (obviously) came in with separate property. She actually had two trusts (A, B; revocable, not) as a result of her first husband's death (I had to teach her that they were not one and the same). We bought property as tenants in common so that the two interests were separate. We later bought property as community property, but that retained the separate interests (at her death, her half would have gone to her children under the terms of her will, and mine would have gone to my children). You do each have to put up half of the money to keep things straight.* The mortgage was paid from wages (community property) so the 50-50 nature of the split was retained.

We had a joint checking account, but all investment accounts were separate. My CalPERS pension was divided according to the Model Domestic Relations Order (not technically a QDRO as I understand it) based on years of service while married as a fraction of years of service (post separation: job, not wife).

* I did put up a little more than half. Call it a wedding present.
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Re: Who Needs A Prenup?

Post by Rodc »

As an aside:

Suppose you have a house, say worth $100K, $20K equity and a pre-nup that says the house is yours. Or to protect the equity.

Now 10 years go by, 15 years. You paid down the mortgage a bunch. House value raised nicely. Maybe you sold the house and bought a bigger house. Or did major remodeling. Lots of value was added during the marriage, maybe through remodeling, upgrading to a larger house, inflation of house values. The line between what was yours alone and what is now joint is very blurry, seems to me.

Income is pretty fungible. Even you keep separate checking accounts and paid mortgage from your account, and she did the same but paid groceries and power bill or vacations, that is basically mental accounting. You had money for the mortgage because she paid those things.

I can see how a pre-nup could be useful for a short lived marriage as far as this house goes.

How about 10 or 15 years down the line? How would that work? General question as I'm sure it changes state to state.
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Re: Who Needs A Prenup?

Post by sscritic »

Rodc wrote: Income is pretty fungible. Even you keep separate checking accounts and paid mortgage from your account, and she did the same but paid groceries and power bill or vacations, that is basically mental accounting.

General question as I'm sure it changes state to state.
In CA, home of the OP, both of your wages are community property. She earned half of each of her husband's paychecks and he earned half of each of hers.* Where they get deposited is irrelevant, unless you are worried about commingling. If they are, they need two separate checking accounts each, one separate checking account for the separate property and another separate checking account for the community property.

* Ask the IRS. Read the instructions for married filing separately in a community property state.
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Re: Who Needs A Prenup?

Post by Rodc »

sscritic wrote:
Rodc wrote: Income is pretty fungible. Even you keep separate checking accounts and paid mortgage from your account, and she did the same but paid groceries and power bill or vacations, that is basically mental accounting.

General question as I'm sure it changes state to state.
In CA, home of the OP, both of your wages are community property. She earned half of each of her husband's paychecks and he earned half of each of hers.* Where they get deposited is irrelevant, unless you are worried about commingling. If they are, they need two separate checking accounts each, one separate checking account for the separate property and another separate checking account for the community property.

* Ask the IRS. Read the instructions for married filing separately in a community property state.
Thanks.
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Re: Who Needs A Prenup?

Post by rallenal »

Not sure it matters what the current law is because that can always be (and has been) changed to invalidate whatever protections you built for yourself. The contract clause of the Constitution grows ever weaker. If you really want to protect yourself, don't do it.
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