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"Keeping Separate Property
Separate in a Marriage"

(12/13/13 Laney & Bollinger | Lawyers) - "Keeping Separate Property Separate in a Marriage"

Can a Husband and Wife keep all their prior property separate? (Unintended Consequences)

A couple decided to get married. They are either widowed or divorced, and each has grown children from a former marriage. One or both have a significant amount of assets and annual income from those assets and they decide to keep each their assets and income from those assets separate.

Without seeking legal advice, they simply agree between themselves that they will keep their money and assets separate and "what's yours is yours and what's mine is mine." If they decided to buy something together, then they would each contribute half to the purchase.

After several years of marriage, one of the spouses dies (D), living the other spouse (S) surviving.

Unless D had a will giving all his property to S, there is going to be likely unintended consequences.

Whether D's Will gives D's property to D's children from prior marriage, or if D dies without a will—either way, the end result is that D's children will own D's community property interest in the part of the assets that S thought was just S's property. And while D's children have an interest in S's community property, S has no interest in any of D's community property because it was all left to D's children.

Assume, D's separate property generated $10,000 a year for the past 10 years, and that of the resulting $100,000 in income, after money spent on living expenses, etc., D had $60,000 in "D's" separate account.

While D's separate property remains D's separate property, the $60,000 of income remaining that came from D's separate property is community property (even though it was generated by D's separate property) and therefore, D owns 1/2 or $30,000 before D's death, and after D's death, D's children own it—half of what S thought was 100% owned by S.

Likewise, if S had spent money from her separate property income account and bought a new car, D's children would own half of S's car!

If the couple had lived in a house that S had owned before marriage and both had contributed significant amounts of their money that they each had before marriage on a new addition to S's separate property home, then D's children would also have an interest in S's separate property home—called a "right of reimbursement" for daddy's separate money that was spent to improve S's house.

And matters could be even worse than that for S.

If S had a significant bank account before marriage (separate property) and S continued to deposit the income from S's separate property as S had done for years before marriage, because the income after marriage is now community property and it is mixed into that same account, because of the co-mingling of community income into the account with formerly only separate funds of S, it is possible that S's entire account would legally all become Community Property, and thus D's children own half of S's money after D's death.

Very likely these are all unintended consequences never thought of by S or D.

Could D & S legally have done what they intended? Yes, but only with competent legal counsel, and the proper legal documents having been prepared for, and signed by, both D&S.

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1.  Introduction to Laney & Bollinger
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3.  What Can You Do When Stopped For Speeding
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6.  Watching Greed Grow...AFTER You Die.

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