Do you need a prenuptial agreement in California to get married? California is a community property state, which means that both parties have an equal interest in any assets you acquire during the marriage. However, assets that you own prior to marriage remain your separate property, meaning the other party does not necessarily get an interest in that asset even after marriage. If one or both parties have business, properties or substantial investments, it can be tricky to figure out what stays “mine” and what part of those assets becomes “ours”. While a pre-nuptial agreement can protect your assets and preserve the separate property character of the asset, a prenuptial agreement is not for everyone in California, and sometimes a prenuptial agreement can cause problems and distrust just when the focus should be on uniting households and planning a future together. It is possible to shield separate assets from turning into community assets without a prenuptial agreement in California. Developing some financial habits prior to getting married will help make this division of assets simpler to track and maintain throughout the marriage.
Identify the assets to be protected
You can’t protect what you can’t define. Put together a list of all bank accounts, retirement accounts, properties, cars, investments, other assets and – don’t forget! – debts.
Make sure you include in this list the value of every asset, as close to the date of marriage as possible.
When putting together this list, make a copy of any document you look at to determine the value of the asset and keep a copy of the document with the list. Sometimes this means getting a valuation completed by an expert. This is particularly important for houses or businesses, because you want to know the value at the date of marriage and not have that value be based on speculation or a Zillow estimate.
Any gains in value after marriage are typically community, so make sure you know how much something is worth before you get married and memorialize that value in writing. This will help define what assets existed as of the date of marriage, and what value those assets have, and you will have all of this information in one place.
You may also want to consider sharing your credit reports
This way you both have an idea of what debt you both are taking on, and how to budget for these debts. Some debts, like student loans, belong to the spouse that incurred them even if they are incurred during the marriage, but these debts can be huge and are not dischargeable in bankruptcy. Even though the debts each party brings into the marriage are that spouse’s separate property, once you are married both of you are going to be impacted by each other’s debts and will have to work together to budget for them. Often one spouse makes more money than the other, so you both should know what debt exists and how you will budget for the payment of these debts after marriage. This will also give you a good idea of the spending habits of both parties and may give you a starting point to discuss and put together a budget. It may also give you some insight as to whether a prenuptial agreement may be absolutely necessary or not.
Keep bank accounts separate, don’t commingle!
Once you have determined what assets you have and want to protect, you now have to make sure that these assets remain separate without a prenuptial agreement in California. If, for example, you have an account that has $100,000 of your inheritance in it, don’t have your paycheck deposited into this account after you get married. This is “commingling”, meaning you are now putting community earnings (earnings you receive after you get married are community) into an account with separate funds. This bad habit can make the entire account community, which means in a divorce, the other spouse has an interest in that account.
At divorce, the court assumes that all assets are community. If you claim an asset is your separate property, you have to prove it. One way you prove it is to show that all the funds in a certain account were there before marriage or came from a source that was your separate property. Sometimes this means that you need to produce every statement from the date of marriage to the present to prove that no community deposits were made into that account.
NOTE: Banks do not always keep these statements longer than 5 – 7 years. If you want to make sure the assets you are claiming as separate property remain your separate property after divorce, you alone have the burden to prove this to the court. Sometimes this means you keep every bank statement each month for every separate account as a pdf on your computer, just in case.
If your spouse has equal access to the funds you claim are separate, if both you and your spouse make deposits and withdrawals from this account during marriage, even if you “borrow” some of this money and “repay” yourself with a bonus, all of these bad habits can cause this asset to be considered community at divorce.
Keep Property Separate
If you own a property and want to rent it during the divorce, keep the rental income and mortgage payments from that house in a separate account.
Don’t run these deposits and payments through the community accounts. Make sure any improvements or repairs also are paid from with these funds, or the community will have a right to be reimbursed for any community funds you used for those purposes.
If you own the property you are going to be living in, consider whether you want to put your spouse on the title.
By placing your new spouse on the title to the house, you are making a gift to them of half the value of the house. In other words, you are making the house presumptively a community asset when you put them on the title, and the home is no longer your separate property. There are some benefits to placing your spouse on the title. For example, on death, the house would go entirely to your spouse and avoid taxes. However, at divorce, you may end up giving away more of the house’s equity.
You have to recognize, however, that if you bought a house before marriage but pay down the mortgage during the marriage, the community gains an interest in that house even if your spouse is not on title to the home. You are entitled to seek reimbursement for the down payment you made to buy the house, and whatever equity existed when you got married, but any increase in value from the date of marriage is generally community and will be divided between the parties in a divorce.
Put together an estate plan.
Meet with a good financial planner and an estate attorney to put together a comprehensive plan to minimize tax consequences and direct what happens to certain assets after death. Having an estate plan also helps to keep separate assets separate.