Family Law Matters: Common Questions

We’ve gathered the top Family Law Matter questions we get most often and answered them for you here. If you would like further explanation on any of the topics outlined below, please reach out.

“I’m expecting an inheritance…should I get a prenuptial agreement?” YES!!

If you don’t have a prenuptial agreement in California, then the Family Code applies. Typically, an inheritance is considered separate property even if received during your marriage. However, even if an asset is considered your separate property, it can still be used to pay child support, spousal support, or even your ex’s attorneys’ fees. In other words, it can be counted as part of your “income” earned during and after marriage.

You can simplify things with a prenuptial agreement, because in California, you can agree that the inheritance will never be considered in determining spousal support or attorneys’ fees. However, spouses cannot contract for child custody or child support in California.

Commingling separate property is messy and expensive. By eliminating your inheritance through a well-planned prenup, you do not need to worry about spending thousands of dollars to trace your inheritance to your family.

With a solid prenuptial agreement, you can eliminate disputes regarding your inheritance at divorce.

Martial Settle Agreements and Life Insurance Policies

When parties divorce, they often enter into a “Settlement Agreement” that addresses child support, spousal support, and division of assets. Often times when one party is ordered to pay the other spousal and child support, the marital settlement agreement will require one party to maintain a life insurance policy on his or her life naming the other party as the primary beneficiary. This is to provide the supported spouse with a certain degree of financial security for support should the paying party pass away. Unfortunately, however, this can also result in unintended tax consequences to the insured spouse’s estate. This is because the IRS will include the face amount of the policy in the supporting spouse’s estate for the purposes of calculating the amount of estate tax owed by the estate.

This can be avoided through the use of a tax-sensitive marital settlement agreement and an irrevocable life insurance trust. This way the life insurance policy would be owned by the trustee of the irrevocable life insurance trust. Since the irrevocable life insurance trust, not the spouse, is the owner of the policy, the life insurance policy will not be included in the spouse’s estate for the purpose of calculating the estate tax owed.

Read the full story at Lexology.