MARITAL PROPERTY LAW. Premarital and Postmarital Agreements

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1 MARITAL PROPERTY LAW Premarital and Postmarital Agreements

2 LtCol David D. Gorman Reserve (Cat B) JAG- USAF Staff Judge Advocate 182 AW, Peoria, IL (IL ANG) Southeastern Ohio Legal Services Steubenville, OH Ohio Department of Agriculture 2005-Present While at Legal Services specialized in domestic relations

3 MARITAL PROPERTY Community Property States: PRESUMPTION that all property owned by one or both spouses at anytime during the marriage is community property to be equally divided

4 Community Property States Arizona California Idaho Louisiana Nevada New Mexico Texas Washington Wisconsin Puerto Rico

5 All Other States Unlike Community Property States all other States treat the division of property acquired during the marriage on an equitable basis This means that fault can be used to deny one spouse an equal share of the marital assets

6 SEPARATE PROPERTY in a community property state Property owned before the marriage Property acquired during the marriage Gift Devise or descent (inheritance)

7 MANAGEMENT OF SEPARATE PROPERTY Separate property gives the owner exclusive rights to management of the property Separate property is not subject to divestiture at the time of divorce Separate property is solely under the testamentary power of the owner

8 COMMUNITY PROPERTY RULES Commingling Inception of Title Increases Jury trial (certain states)

9 COMMINGLING Yours Mine - Ours The separate assets of a spouse have been so hopelessly mixed or combined with community assets that they can no longer be traced Marital property presumption Generally funds put into a joint bank account are considered community property and separate funds so deposited are usually considered hopelessly mixed that they can be no longer traced

10 COMMINGLING Defenses Tracing- clearinghouse method- identifiable sums of separate funds deposited, identifiable sums of separate funds deposited, identifiable withdrawals made that clearly identify character of transaction. Estate of Hanau v. Hanua, 730 S.W. 2d 663 (Tex. 1987) Lesson if you want to keep property, especially money, separate, keep it in a separate account (Yours and Mine)

11 COMMINGLING DEFENSES COMMUNITY OUT FIRST RULE: withdrawals from mixed fund presumed to be community, withdrawals presumed separate only when community funds exhausted. Sibley v. Sibley, 286 S.W.2d 658 (Tex. 1955) Example: Bill marries Sue on 12 Oct 05. On 11 Oct 05 his bank account had $25,000. Over the years Bill keeps making deposits and withdrawals, at one point the account dips to $5,000, but on the date of divorce it is $50,000, how much is Bill s separate property?

12 INCEPTION OF TITLE The character of property is determined at the earliest moment in which the claimant can claim title. Real property- ownership begins of the date of the purchase contract, not necessarily the date of the deed

13 Examples Inception of Title Couple purchases property in a separate property state Property purchased in a non-community property state is still community property if purchased during the marriage, while residing in a community property state and the divorce occurs in the community property state But what if the facts are changed -

14 Inception of Title Spouses married in non-community property state, acquire property and then move to community property state All property purchased in the separate property state is the separate property of the spouse that purchased it even though they are now in a community property state, but any property accumulated since the move is community property (no matter where it was purchased)

15 INCREASES IN VALUE The natural increase or decrease in the value of a separate asset does not affect the character of the property. (increase or decrease in value of realty) Income generated from a separate asset is community property (rental income from rental realty)

16 JURY ISSUES In Texas- it can be a jury issue the dispute over the character and value of property (separate v. marital) and percentage of each Judge decides the division of the marital estate portion But seriously, would you want 6-12 strangers, or worse yet, your neighbors telling you whether the antiques you bought in Illinois are separate versus community property and what they are worth?

17 Mutation An asset of a specific character, whether separate or marital, retains that character even after undergoing a change in form and when it exists in another asset. EXAMPLE. A certificate of deposit owned by a spouse before marriage may be used to purchase an automobile or real estate during marriage but beware that no marital funds are used to purchase the automobile.

18 REIMBURSEMENT Basis for a claim by one estate against another (example-community against separate estate) Payment by one marital estate of the unsecured liabilities of another marital estate Inadequate compensation for the time, toil and talent, and effort of a spouse by a business entity under the control and direction of that spouse The reduction by the community property estate of an unsecured debt incurred by a separate estate of the other spouse

19 Property Division Even though it is a community property state, most community property states allow the Court discretion to make a just and right division of community property when a strict application of the community property rules would result in an unjust result Factors for the Court Equities of the parties Fault/financial circumstances of each party Needs of the children

20 MILITARY RETIREMENT ISSUES Yes, the Court is going to award your exspouse some of your retirement- stop whining Retirement should be based on member s high 36 at the time of divorce- language should be clear in decree or DRO Member is a Trustee to ex-spouse regarding payment of retired pay- can be sued for enforcement for non-payment

21 MILITARY RETIREMENT CONTINUED Disposable military retired pay versus gross military retired pay (USSPA allows states to divide disposable military retired pay Disability pay is separate property Non-member spouse does not lose their interest in disposable military retirement upon remarriage

22 10 YEAR RULE DFAS will calculate military retirement benefits and garnish disposable military retired pay to the non-member spouse ONLY if the parties were married 10 years while the member served on active duty Court may divide disposable military retired pay even though the parties were married for less than 10 years while the member served on active duty

23 SURVIVOR BENEFIT PLAN Annuity to protect the non-member spouse s interest in disposable military retired pay Election must be made within 1 year of member s retirement Premium payments are taken off the top of disposable military retired payments

24 Debt Post-Divorce AFI Personal financial responsibility Marital debt may not be discharged in Chapter 7 bankruptcy to disadvantage of other spouse The Court will award a spouse an automobile, subject to a lien with both parties responsible Mortgage in both spouses name? Refinance provision Deed of Trust to Secure Assumption

25 Premarital and Marital Property Agreements Expressly opting out of the marital property system in favor of a separate property system in whole or part

26 Premarital Agreement Uniform Premarital Agreement Act signed by 27 states Must be in writing and agreed by both parties No consideration required Effective upon marriage After marriage, may be amended or revoked only by written agreement signed by the parties

27 CONTENT OF PREMARITAL AGREEMENT Rights and obligations of each regarding any property acquired during the marriage Income earned during the marriage from separate property (Example rental income) Income that would otherwise be considered MP Rights regarding management of property Rights regarding disposition of the property on death, divorce and separation Rights regarding payment of spousal maintenance

28 ENFORCEMENT A party did not sign the agreement voluntarily Agreement is unconscionable Party was not provided a fair and reasonable disclosure of property or financial obligations Party did not voluntarily and expressly waive, in writing, any right to disclosure Issue of unconscionability is decided by Court as a matter of law Burden of Proof is on challenging party

29 Post Marital Agreement (Partition and Exchange Agreement) Parties may agree to partition or exchange all or part of community property, then existing or to be acquired CP------becomes SP Partition or exchange of property may also provide that future earnings and income arising from the transferred property shall be the separate property of the owning spouse

30 INCOME FROM SEPARATE PROPERTY At any time, the spouses may agree that the income or property arising from separate property that is owned or may be owned thereafter, shall be the separate property of the owner Example Wife receives property through inheritance- Husband agrees that income from SP remains SP

31 CONVERT SEPARATE PROPERTY TO COMMUNITY PROPERTY Spouses may agree that all or part of the separate owned by either or both spouses is converted to community property

32 Formalities Must be in writing Must be signed by the parties No consideration required

33 ENFORCEMENT Executed voluntarily Fair and reasonable disclosure Partition and exchange agreement is void with respect to a preexisting creditor whose rights are affected by it Agreement may be recorded, not required