Protect Your Assets by Keeping Records

When two people fall in love and decide to get married, they don’t want to consider the possibility that at some time in the future they may no longer feel the same way about each other – and that the experience of separation and divorce might turn ugly over issues of community assets and debt obligations.

Sadly, as we all know, this scenario happens all too frequently. But while divorce is an unhappy topic to consider before such a happy occasion as marriage, I believe it’s vitally important to do so. A well-considered and expertly crafted pre-nuptial agreement can set out rights and responsibilities, address issues of property characterization, and minimize the potential legal costs involved in a lengthy and contentious divorce.

Division is right down the middle

Here’s a common problem I see in my practice. A client comes in who’s been married a long time (10 years, 12 years, longer) but doesn’t have a pre-nup. This person is very unhappy at the prospect of having to divide practically everything he or she owns 50-50 – as generally is required by California community property law. Why? Because, the client says that they came into the marriage with substantial assets acquired well before anyone said, “I do.”

Since California is a community property state, we start with the assumption that, when it comes to property that has been acquired in the course of a marriage (that is, all the assets as well as debt obligations), the division almost every time will be right down the middle.

A possible exception occurs in cases where domestic violence is involved. If the court determines that one person has been severely injured and is leaving the marriage with substantially diminished capacity to acquire new assets and income, he or she may be entitled to more than a 50-50 division of assets and debts.

The importance of “tracing”

 But what about assets and debts acquired either before the marriage or after separation?  The key to asserting one’s exclusive rights to property acquired before marriage or after separation is through what’s known as “tracing.” If you can trace the timing of the acquisition of an asset to a date either prior to the marriage or after you and your spouse/partner separated, the court will, in most cases, take this as proof of separate property belonging to the person who acquired it. The same principle applies to assignment of debt in the divorce.

But tracing depends on accurate documentation – and that’s where many of us fall short. As in the long-term marriage I mentioned above, it’s easy to lose track of any documents you might have concerning the acquisition of assets 10, 15 or 20 years ago. Unless you can produce such documentation, it will be very difficult to establish that any specific asset should be deemed your separate property.

Things get further complicated when you have to reach out for assistance with documents. Many institutions like banks expunge records after a certain amount of time has passed. So when it comes to obtaining financial and investment information from long ago, unless you’ve kept good records on your own, you may be out of luck.

I can’t stress this strongly enough. Print out your important documents (bank statements, credit card statements, etc.) and keep them locked away. You never know when a particular document will prove useful in court.

How can you attempt to avoid all this drama and turmoil? Look into having a pre-marital agreement, even if it casts a momentary shadow over your upcoming wedding celebrations. It’s by far the best way for both parties in a marriage to identify and protect their separate assets and minimize the possibility of being liable for the other’s pre-marital debt obligations, if things take a turn for the worse somewhere down the road.

Is a pre-nup right for you or just have any questions regarding the above topic?  The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from family law, estate planning, bankruptcy, and DUIs and landlord/tenant disputes.