It is not uncommon for couples to enter into marital agreements stating what property is separately owned by each spouse and the property rights each spouse will have in the event of separation, divorce, or death. They are most common when one or both of the spouses is wealthy, owns a family business, or expects a large inheritance, as well as when one or both spouses marries for a second time. Because these agreements can change or limit a surviving spouse’s right to inherit, play certain roles in their deceased spouse’s estate plan, or take advantage of certain tax benefits, they can have a substantial effect on an estate plan.
If you and your spouse have a marital agreement, it is crucial for you to provide a copy of it to your estate planning attorney to avoid conflicts between provisions in your estate planning and the marital agreement. If the documents conflict, a probate court must determine which document will take precedence over the other which will likely result in expensive litigation.
What Is a Marital Agreement?
There are two common types of marital agreements:
Premarital Agreement or Preregistration Agreement. A premarital agreement (commonly known as a “prenuptial” or “antenuptial” agreement) or preregistration agreement for domestic partnership is an agreement that is made between prospective spouses or registered domestic partners (“RDP”), respectively, in contemplation of marriage or registration and that is to be effective on marriage or registration (Fam C §1610(a), §1613).
Postnuptial Agreement. A postnuptial agreement or postregistration agreement is entered into after the marriage has occurred. In addition to timing, another difference between a premarital agreement or preregistration agreement and a postmarital or postregistration agreement, is that a fiduciary duty exists under Fam C §721 after two individuals are married or have registered as domestic partners. Because of such a fiduciary duty, if one party in a transaction between spouses or RDPs gains an advantage over the other, a rebuttable presumption arises that the transaction resulted from undue influence (Marriage of Delaney (2003) 111 CA 4th 991, 996).
A Marital Agreement Can Alter a Surviving Spouse’s Rights.
California is a community property state. In California, on the death of a person with a spouse or RDP, one-half of the community property belongs to the surviving spouse or partner and the other half to the deceased spouse or partner (Prob C §100). In general, all property, real or personal, wherever situated, acquired by a married person during the marriage or by an RDP during the partnership while domiciled in California is community property; provided, however, that gifts and inheritance are presumed to be separate property.
A marital agreement can change statutory rights. Although limiting a spouse’s inheritance rights may seem heartless it is not uncommon, particularly in a second marriage where one or both spouses have children from a first marriage and each came into the marriage financially secure. In that situation, the children are often the main beneficiaries of their parent’s will or trust, as parents commonly want their estate to primarily benefit their own family rather than the family of a new spouse. There also are many other factual situations in which spouses may find it beneficial to enter into a marital agreement altering these statutory rights. In California, the following rights of a surviving spouse or RDP may be waived in whole or in part (Prob C §141(a)):
- The right to property that would pass from the deceased spouse to the surviving spouse by intestate succession or will;
- The right to a family allowance or probate homestead;
- The right to have exempt property set aside;
- The right to have a small estate set aside under Prob C §§6600–6615;
- The right to elect to take community or quasi-community property or to take the statutory share of an omitted spouse or RDP;
- The right to be appointed personal representative of the decedent’s estate; and
- The right to an interest in property that is the subject of a nonprobate transfer on death under the provisions of Prob C §§5000–5032.
Transmutation of property. In addition to waiving rights, spouses or RDPs in California may modify the classification of property as follows:
- Community property to separate property of either spouse or RDP;
- Separate property of either spouse or RDP to community property; or
- Separate property of one spouse or RDP to separate property of the other
(Fam C §850). If the intention is for the surviving spouse not to receive community property rights, a valid marital agreement should be put into place stating how the couple has agreed the property should be treated at death.
A Marital Agreement Can Clarify Whether a Surviving Spouse Will Benefit from a Portability Election.
Federal tax law allows a surviving spouse to utilize any unused portion of their deceased spouse’s lifetime gift and estate tax exemption ($11.58 million for individuals for 2020) in addition to his or her own exemption amount. However, for portability to be available to the surviving spouse, a portability election must be made by filing an estate tax return for the deceased spouse even if the estate is not large enough to necessitate it. If the surviving spouse is very wealthy, the deceased spouse’s unused exemption amount, added to the surviving spouse’s exemption amount, could result in substantial tax savings benefiting the surviving spouse’s beneficiaries.
Consequently, particularly in the case of a second marriage, when one or both spouses have children who may act as their executor or trustee, the marital agreement should specifically address this issue. If the spouse who dies first wishes for the surviving spouse to benefit from a portability election, this should be clearly stated in the marital agreement. If not, it should be waived in the marital agreement. For couples with a marital agreement that was put in place before 2010, the year when the law allowing portability was enacted, it is wise to review it and make any amendments needed to specifically address portability.
We Can Help Eliminate Uncertainty
Families can be more complex these days than they often were in the past. A marital agreement can be an important element of a comprehensive estate plan designed for your unique circumstances. If you have a marital agreement, we can help ensure that the rights and goals you and your spouse have established are also reflected in your estate planning documents, eliminating any uncertainty about your wishes. Give us a call today to set up an appointment. We are happy to meet with you online or by phone if you prefer.