GTH Estate Planning Blog

Lars's meeting with Duncan and Bernie resumes. Duncan says the effect of a married couple's liabilities on their community and separate property is a little tricky, but it's important in cases where the question arises. He gives an illustration. A woman from a wealthy family marries a guy who's a budding obstetrician. If she allows her separate property to become community property, either by agreement or by commingling, and a medical malpractice case arises against her husband, then her property is exposed to the case. If she keeps it segregated and makes no community property agreement, the claimant may not get at it.

Duncan lines out part of the theory. The income of a married person from work is community property. The idea is a married couple is like a partnership, with each performing a different part of the work, but with both contributing to the overall effort. So the income from work is community, but so are the liabilities. Not so with the wife's separate property. If the assets from her family were in trust for her, that would likely be even better protected than separate property.

The prenup Lars helped arrange for Uncle Nils, was more properly done and more complete than Carla Dewberry's.

Premarital agreements are commonly viewed as tools of deprivation and exploitation. Prenups are perhaps most common in later-in-life marriages, and the parties are likely to differ in wealth. Does the rich old guy secure the younger and poorer woman at a bargain, leaving her with little after she looks after him for years? Sometimes. But an agreement can be a useful form of communication, resolving important practical questions that might otherwise go unasked. Is Sylvia promised any financial reward? How much, and in what scenarios?

The answers aren't always miserly. Many lawyers recommend a degree of generosity. This is partly because a stingy arrangement is more likely to be found invalid in a later divorce. But there's also the factor that it's a marriage being talked about, not a sale of property between unrelated persons. Nils has no kids and has plenty of money. Why not make a nice gesture to the woman he's marrying?

Nils and Sylvia's document was drafted by his attorney, then reviewed by hers with her. It was done months in advance of the wedding, as a last-minute deal is breakable, implying the possibility of duress. His separate property remains that way. But she gets the house and a $2 million trust out of it if they divorce after at least three years, or if Nils dies before her.

This is what Nils has agreed at the outset, that he must do for Sylvia in those events. He might be a little worried she is more interested in his money than in him, although she does seem genuine. If things go well he can be even more generous; their agreement certainly doesn't prevent that.

Surprising things happen sometimes, with women and men...

Emanuel thought ahead and got burned. Carla was careless (or at least carefree) and got away with it. Why?

Budding music executive Emanuel insisted on certain conditions to marry recent law graduate Carla, who was then working in a big CPA firm. They must keep their incomes and assets separated, and Carla would not get fat (!). The Marriage of Dewberry, decided in 2003 by the Washington Court of Appeals, leaves us wondering about fulfillment of the second condition, but Carla did get fat on the first.

It turned out she was the one who needed a premarital agreement, not Emanuel. His music career foundered, and he ended up working part time for United Parcel. She became a partner in a Seattle law firm, making over $1 million in 2000. [Editor's note: this is not a typical income for a lawyer.] They invested separately, mostly in real estate, although they did have a joint account for expenses of their kids and other shared items.

Nils isn't the main reason things are pretty good for Lars. But it doesn't hurt.

Nils had been a lifelong bachelor, mostly obsessed with accumulating real estate, initially in the grocery business but eventually as a thing in itself. He's now worth millions, and not just a few of them.

Lars is Nils's CPA, and helps to keep track of the real estate holdings and their management, more so as the years go by. Nils is in his eighties.

Lars tries not to think of it this way, but it's convenient that Lars is childless. It's less convenient that Uncle Nils is recently married.

Gary and his employer Costco were both sued by Kim for sexual harassment of her. Gary's wife Sherry was also sued, not for participation in the alleged acts but to make Gary and Sherry's community property available to satisfy the claim.

Community property is net worth developed during the marriage by the work of either or both of the spouses. The idea is that, even if only one spouse is working for money, he or she couldn't do it without the support of the other. Separate property is what is brought into the marriage, or gotten by gift or inheritance while married. Separate property may be made into community property by commingling (mixing together with community property) or by agreement.

Kim sued Gary and Sherry's community on the notion the harassment occurred at work, where Gary was working to gain community income. Did the Court make Gary and Sherry's community property available to the suit?