California Community Property: An Introduction to Prenuptial/Premarital Agreements

Engagement photo of Mr. Rohit Bora and Mrs. Reema Chand-Bora

My posts are normally business related. However, a prenuptial agreement deserves some attention, as it is a form of asset protection. In addition, I do believe that most people marry at some point in their life. Therefore, it makes sense to discuss a topic that will offer many individuals financial protection given the high divorce rate. Therefore, I will discuss with you the basics of Community Property law, particularly for California residents.

A prenuptial agreement (prenup), also known as premarital agreement, is not an easy topic to discuss. In fact, I think many would simply shudder at the idea. But why is that? It most likely has to do with the subjective belief that a couple will not divorce. If you fall into that category, you may want to consider the high divorce rate. Marriage really is a big step, one that will require not only soul searching but pondering on practical questions as well. In regards to a prenup, ask yourself, “would it be better for a couple to decide on what to do before a divorce while they still love each other, or should they leave it up to the government to decide when divorce is imminent and the couple hates each other.” As a couple, you can write whatever you want in your agreement, as per within the law. Doing so will ensure that the assets are not split in the manner instructed by legislature. Business contracts usually carry all sorts of conditions and covenants to deal with situations that they hope will not happen. Why shouldn’t a couple about to marry do the same, especially since they’re about to enter what is basically a partnership.

Irrespective of a prenup, there are two differing laws that can apply under a divorce. The first law comes from the English known as Common Law. The second is Community Property, which is adapted from the Spanish and applies to California under the Treaty of Guadalupe Hidalgo.

Under the Common Law, specific property will belong to whoever solely holds title to that property. For example, real property, e.g., your home, bought within the marriage that is solely under one spouse’s name, will remain with that spouse after divorce. This result is a stark difference from Community Property.

We as Californians have to take note of Community Property laws. Under Community Property, property acquired after marriage but before the couple separate is considered part of the community interest, except for gifts and inheritance. (When I say “couple separate”, that is when the couple decide to stop being with each other, not a legal divorce). Property that falls under the community interest is evenly shared between the couple giving each spouse a one-half interest. In contrast to Common Law, Community Property includes any property that is titled solely in one spouse’s name, which would then give a one-half interest to the spouse whose name does not appear on the real property deed. Moreover, if a couple divorces in California and they have real property titled solely in one spouse’s name in a Common Law state, that property is considered quasi-community property, and the interest will be split evenly under Community Property. Furthermore, an individual spouse’s wages is also considered community interest and the other spouse will be entitled to one-half of the earnings. Lastly, business and retirement interest are similarly split through the use of certain mathematical formulas (Van Camp and Pereira). That includes the increase in value of your business during the time of marriage, and the worth of your efforts into the business or wages.

Basically, in California, all of what is earned and purchased during the marriage is considered as belonging to both spouses, unless an exception applies. Thus, upon divorce, there will be an equal split between the couple and that includes any debts. Many individuals have asked me, “why can’t you just have separate bank accounts for each spouse, and a joint account to help pay the mortgage and other family expenses.” This statement is made with the belief that the separate account will remain solely with an individual spouse after a divorce. That is not true under Community Property. However, a spouse can retain any account or asset that is purchased during marriage if the other spouse creates a contractual agreement giving that spouse sole ownership. This agreement creates something called “transmutation”, which will then exclude the asset from the community interest. However, concerning transmutation, a spouse can easily argue that such an agreement was created through fraud, and would thus violate the fiduciary duty between spouses. Therefore, transmutation agreements would have to be intricately drafted where each spouse fully apprehends the interest ownership outcome. This may require the need for an independent counsel to make sure the spouse is adequately informed about eradicating his or her interest.

Mr. Rohit Bora and Mrs. Reema Chand-Bora had their wedding in India, December 2010. Congratulations and best wishes!

There are some exceptions to the Community Property interest that will be considered a spouse’s separate property: gifts and inheritance. An individual spouse can receive gifts or an inheritance and keep it solely under his or her name. Furthermore, if a gift or inheritance is used to purchase other assets, or liquidated for cash, that value or new asset will still be considered that spouse’s separate property. This is known as tracing, where if certain property can be traced to an inheritance or gift, it will be considered a spouse’s separate property.

With that said, I have introduced you to a brief introduction into divorce asset allocation. With this knowledge, it will be up to you to decide whether a prenup will benefit you and your family. Even after marriage, a couple can still draft a similar agreement, a post-nuptial agreement. However, marriage creates a fiduciary duty between a couple and therefore the court will hold a stricter standard in judging such an agreement. Hence, you may each need independent counsel in drafting a post-nuptial agreement.

There are more nuances that will require seeing a lawyer if you seek information or plan on drafting a prenup. If you are reading this in preparation of marriage, I hope that you do retain an attorney to help you accomplish your goals. Moreover, it is my sincere wish that you have a long fruitful marriage where none of this information will apply to you. Hence, no need for a costly divorce attorney.

Best of luck!

Tenant from Hell: Unlawful Detainer

Landlords and tenants have a long history of issues that require legal resolutions. They are lessons learned and having a basic understanding of the law will make things a bit easier. However, much like any area of the law, real property law is pitied with legal nuances that may differ based on your jurisdiction. From the landlords perspective, having helped my parents deal with a chaotic tenant was definitely a real life learning experience for this budding attorney — one that I will share with you to give you an idea on the Unlawful Detainer process.

My story involves a small quaint cabin nestled in the mountains of Arrowbear, California. This cabin is co-owned by my parents and a few other relatives. Here, my family was able to enjoy the greenery forest and snow seasons away from the concrete atmosphere of city life. The cabin is a beautiful getaway, almost heavenly. However, as we found, some can turn that heaven into a hell. To gain some steady income, my parents had leased the property to a twenty-something trust fund beneficiary. The tenant had no other source of income aside from what the current boyfriend may have given. However, I would expect the tenant to spend some sums on her two small children. When the funds for this young tenant depleted, she had no plans on how to pay her rent. However, she did have a plan on extracting a couple months rent free.

The rent issues began to occur with late payments, which my mom allowed due to her generosity. However, she made the mistake of accepting a small sum of payment for the first month that the tenant was late. The law has something called Accord and Satisfaction where if a payment short of the full amount due is made by the tenant and accepted by the landlord, this payment may be considered as payment in full. This is irrespective of any contractual language that would state otherwise. Therefore, for this particular month, my family was not able to collect the remaining amount due.

The tenant had left a mess in every corner of the cabin which included coloring on the walls.

As another month carried on, the tenant still failed to pay rent. That is when drastic legal measures needed to be taken. Given that the tenant’s ability to pay rent was practically eliminated, it was time for the tenant to get out. Here is when the three-day notice to pay or quit the premises was given. The three-day notice can only discuss plain rent, meaning that it cannot include other forms of payment such as utilities. Do not confuse the three-day notice based on rent with the thirty-day notice used to end a month-to-month tenancy. Upon receiving the notice, the tenant took that opportunity to research eviction laws and especially took note of the time frame that the process will take. She remained on the premises after the three days and an unlawful detainer complaint needed to be filed. The complaint must be filed in the proper court in the county that has jurisdiction over your property, not the county of where the landlords reside even if stated otherwise in the lease contract. Therefore, given the location of the cabin being distant from the landlords and myself, handling this complaint took some mileage. The complaint template will most likely be found on your county’s court website. Even more helpful, your county’s website may have templates for different notices including the three-day notice. Filling out the template will take basic knowledge of your property along with the tenant situation. Once the complaint is filed, the complaint must be served by someone over the age of 18, who is not a party to the action. Here, you can have a friend serve the complaint, such as we did, or you can hire a process server. If you’re dealing with a dangerous tenant, you may want to choose the process server. The server must then file proof of service with the court.

On filing the complaint and proof of service, you would then face the procedural consequence of waiting. My parents were not due into court for roughly a month. During that period, the tenant remained on the property for more than half that time. Once the tenant had left, it was in my parents’ best interest that the complaint be dismissed. Given that the tenant survived off a trust fund and lacked a job or an education that would at least create earning potential, the idea of collecting from her was strenuous. Although we could use a collection agency, it seemed best to move on and leave this tenant in our past. Furthermore, the Unlawful Detainer complaint only includes the plain rent. To collect on other contractual agreements such as utilities would require a different suit in small claims (attorney’s are not used for small claims).

To adequately insure the tenant had moved on, a letter of abandonment needed to be certified mailed (for evidentiary purposes) to the property. Then was roughly a two-week wait to make sure the tenant did not re-enter the premises. Otherwise, the tenant would need to re-enter the premises and argue against the abandonment to remain on the premises. The letter of abandonment also insured against the tenants personal belongings left behind.

Once this period passed, the landlords were free to enter the premises and clean up the hellish atmosphere that the tenant had created for herself and her two small children. That included an influx of food, alcohol, cigarettes, random junk, and the most intimidating was the cat urine, all of which had permeated into the carpet. Clean up called for new furniture, mattresses, cookware, and of course new carpet. They managed to trash as much as possible, including the storage area that housed the water heater and the surrounding landscape of the property. This only leaves one to ponder on how someone can force their children to live in such conditions. Within ten minutes of entering the property, I had suffered major allergies to the point where staying to help clean was impossible.

Overall, this was a lesson learned on the Unlawful Detainer process and a wakeup call to background check tenants. Furthermore, taking note on how the tenants treat the property is imperative. If you find yourself leasing property, be sure to check your tenant. Our tenant trashed the premises and got away with a few months rent free. Moreover, equip yourself with the knowledge and proper documents that may be found on your County Court’s website. In addition, there are self-help centers by your local court that will adequately help you with your issues. The other two options, if you are willing to spend some funds, are to use a property manager, or hire an attorney. Therefore, be prepared in dealing with your tenant, you may not know what they will do to your property by the end of his or her lease. Like in our case, they may turn your heavenly getaway into a hell.

Shown is the entrance to the master bedroom, with more trash, a broken door, and cigarettes with old beer/energy drinks piling up in the corner. This photo was taken after a partial clean-up.

Libel Disclaimer: Libel is written defamation, where there is a writing that adversely affects someone’s reputation that is publicated. For sure, the information written in this blog post will adversely affect the tenant’s reputation. Who will want to rent to her after reading this? If you live within the area, then there is no doubt that you probably know about the property and the identification of the prior tenants, which I did not disclose. However, under the law, truth is a defense and everything described above has been true.

Should you wish to learn more about or enjoy the cabin: http://ourvacationhomes.freehostia.com/