What exactly is Separate Property?
You have most likely heard that California is a "community property" state, which means all assets acquired during a marriage, by either spouse, belong equally to each spouse. In other words, despite who earns the income during a marriage, the income belongs equally to each spouse. The same is not true for separate property. Separate property is, as you might guess, separately owned by one spouse. In general, separate property is any asset that has either been acquired prior to the marriage or is inherited by one spouse.
So, what happens to separate property that is not otherwise arranged for in a legal document (like a will, pre-nup, or joint-tenancy deed) when the spouse who owns it dies? How much does California law say the surviving spouse is entitled to? With no estate planning documents in place, this property is known as the "intestate share."
How much the intestate share of the surviving spouse is depends upon several different factors. Let's use an example to illustrate: Joe Smith bought a house and paid for it in full prior to marrying Jane Smith. Joe and Jane live in the house together. No other contracts or agreements are signed, no estate plan is done. Because Joe enters into the marriage already owning the home, the state of California considers it separate property. Now, somewhere down the road, Joe Smith dies and Jane keeps living. Can Jane stay in their home? And who owns the home now?
Joe’s separate property, which in this case is a home, would pass:
1. 100% to the surviving spouse (Jane), if the decedent (Joe) did not leave any surviving children, parents, siblings, nieces, or nephews. In other words, the surviving spouse would be left with 100% of the home if their spouse has no children, grandchildren, parents, siblings, nieces, nephews, grandnephews, etc.
2. 50% to the surviving spouse if:
- The decedent (Joe) leaves only one child or grandchildren of only one deceased child
- The decedent leaves no children but leaves a parent, brothers, sisters, or half Siblings, or their descendants.
3. 33% to the surviving spouse if:
- The decedent (Joe) leaves more than 1 child.
- The decedent leaves one child and the issue (spawn) of one or more deceased children. For example, Joe leaves behind one child and two grandchildren from a deceased child.
So, as you can see, if Jane and Joe are a married couple who reside in a home that is Joe’s separate property, and Joe dies, Jane may or may not be able to continue living in their home, depending on how many relations Joe has, and how generous those relations are to Jane.
Joe and Jane’s situation is more plausible if they are married later in life. After all, very few young men would own a home outright prior to marriage. To answer your obvious question here - what would happen if Joe bought a home prior to marrying Jane, but paid off the mortgage during his marriage to Jane?
In this scenario, part of the home would be considered separate property, and part of it would be considered community property. An equation called Moore Marsden would determine the percentages, and the home would pass according to separate property laws AND community property laws, which would likely give Jane a much larger share in the home, if other family members were present.
In general, it's best not to leave it up to the state of California to distribute your property when you die. This is what often leads families to fight, especially when there are multiple siblings or blended families. Stating your wishes clearly in a valid estate planning document such as a will is the best way to protect your family and your assets. In addition, placing assets of significant value (such as a home) in a trust, will avoid the cost and headache of probate.
For questions about separate property and estate planning, call my Walnut Creek Estate Planning firm at 925-322-1795 for your free consultation.