Estate Planning During Divorce: What Mediation Clients Need to Know

When going through a divorce, there’s often a lot to juggle—emotionally, legally, and financially. One critical aspect that sometimes gets overlooked is estate planning. Even though your marriage is coming to an end, legally, you're still considered married until the divorce is finalized. This means that if something happens to you during the divorce process—such as death or incapacity—your spouse may still have legal rights to your assets or decision-making authority unless you take proactive steps.

Automatic Temporary Restraining Orders (ATROs) and What They Mean

Once you file for divorce, Automatic Temporary Restraining Orders (ATROs) go into effect. These orders are designed to maintain the status quo and prevent either spouse from making drastic changes to their financial situation without the other’s consent. However, ATROs also limit your ability to make changes to your estate plan, such as altering beneficiary designations or transferring assets into a trust.

Here’s a breakdown of what you can and cannot do during this period:

Actions You Can Take Without Restrictions
Even with ATROs in place, you still have the freedom to:

• Create, modify, or revoke a will: A will outlines how your property will be distributed upon your death. It can be created or changed at any time during your divorce.

• Create a trust: You can establish a new trust to protect your assets, but without written consent from your spouse, you won’t be able to transfer assets into the trust until after the divorce is finalized.

Actions That Require Notification (But Not Consent)
There are certain estate planning steps that require you to notify your spouse, but do not need their consent:

• Revoke a revocable trust: If you have an existing revocable trust that benefits your spouse, you can revoke it with notice to them.

• Sever a joint tenancy: If you hold property jointly with your spouse (joint tenancy with right of survivorship), you can sever this agreement to prevent your spouse from automatically inheriting your share of the property if you pass away.

Actions That Require Written Consent from Your Spouse
Some actions require more than just notice—they need written permission from your spouse:

• Change beneficiary designations: For assets like life insurance policies or retirement accounts, you cannot change the beneficiary from your spouse to someone else without their consent.

• Fund a new trust: Even if you create a new trust, funding it (transferring assets into it) requires written consent from your

Divorce can take months or even years to finalize, leaving your estate in a vulnerable position. Here are some things to consider:

Death During Divorce
If you pass away before your divorce is finalized and without an updated estate plan, your spouse may still inherit your assets according to the laws of intestacy. This means that without a will or trust, most of your community property and potentially a share of your separate property could pass to your spouse—even if you were in the process of dissolving your marriage.

Incapacity During Divorce
If you become incapacitated and do not have a durable power of attorney or healthcare directive in place, a court-appointed conservator may take control of your affairs. To avoid this, you can designate someone you trust to make financial and medical decisions for you while the divorce is ongoing.

1. Revocation of Estate Plans Upon Divorce
   Once your divorce is finalized, any estate plan that designates your ex-spouse as a beneficiary—such as a will, trust, or life insurance policy—will be automatically revoked by law. However, until that legal termination is complete, your current estate plan remains in effect. It’s important to address this as soon as possible to ensure your wishes are followed.

2. ERISA and Retirement Accounts
   If you have retirement assets like a 401(k) or 403(b), the Employee Retirement Income Security Act (ERISA) requires spousal consent for you to designate anyone other than your spouse as a beneficiary. You can revoke the existing beneficiary designation, but you’ll need your spouse’s written consent to name a new beneficiary.

3. Handling Joint Tenancy and Non-Probate Transfers
   Joint tenancy and other non-probate transfers (such as life insurance or transfer-on-death accounts) can be revoked, but you cannot name new beneficiaries or change ownership of these assets without spousal consent during the divorce process.

4. Durable Powers of Attorney and Health Care Directives
   Upon finalization of your divorce, any durable powers of attorney or healthcare directives that name your ex-spouse as your decision-maker will be automatically revoked. Until then, those documents remain valid, and your ex-spouse could have legal authority over your financial and medical decisions.

To avoid unintended outcomes during divorce, it's critical to revisit your estate plan early in the process. If you don’t already have an estate plan, now is the time to create one. If you have an outdated plan that names your spouse as a beneficiary or decision-maker, updating your documents will ensure that your wishes are followed in the event of your death or incapacity.

By addressing estate planning in mediation, you can safeguard your future and ensure that your assets and health care preferences are in line with your current life circumstances.

The Benefits of Family Mediation: Styles, Preparation, and Tips for Success

Family law disputes can be emotionally draining and financially burdensome.

Mediation offers a valuable alternative to traditional litigation, allowing parties to resolve their issues collaboratively and efficiently. Whether you're an attorney preparing for mediation or an individual involved in a family law case, understanding the nuances of the mediation process can significantly impact the outcome.

Choosing the right mediation style is pivotal. Here are three primary styles:

1. Facilitative Mediation

• Pros:

  • Empowers parties to explore various options and have significant influence over the outcome.

  • Encourages creative solutions that address the interests of both parties.

  • Generally less expensive due to fewer required resources.

• Cons:

  • May be less effective when there's a significant power imbalance.

  • Complex legal issues might not be fully resolved without expert input.

In facilitative mediation, the mediator guides the process without offering opinions or suggestions, helping parties find common ground.

2. Informative Mediation

• Pros:

  • Provides parties with expert knowledge about legal rights and responsibilities.

  • Addresses legal complexities without formal litigation.

  • Can save time and money compared to court proceedings.

• Cons:

  • Options may be limited by legal constraints.

  • May not fully address emotional or relational issues that hinder agreement.

This style involves a mediator who supplies legal information, aiding parties in making informed decisions.

3. Evaluative Mediation

• Pros:

  • Offers expert guidance, potentially leading to swift dispute resolution.

  • Clarifies complex legal matters through evaluations.

  • Can expedite resolutions by relying on expert opinions.

• Cons:

  • May feel less collaborative due to the mediator's influence.

  • Parties might feel pressured to accept recommendations out of deference to the expert.

Evaluative mediation involves the mediator providing opinions based on their legal expertise, often used when negotiations have stalled.

Choosing the Right Mediator

Consider which style—or combination of styles—best suits your case. The mediator's approach should align with the specific needs and dynamics of your situation.

Mediation offers a pathway to resolve family law disputes with greater control, reduced costs, and often, less emotional strain. By thoroughly preparing yourself, your client, and engaging constructively with the other party, you enhance the likelihood of reaching a satisfactory resolution. Remember, the goal is to find a solution that both sides can live with, allowing everyone involved to move forward.

Legal Separation

In California, once a legal separation is finalized, it does not automatically restore the marital status if you later decide to reconcile. The legal separation remains in effect unless formally changed. Here’s a brief overview of your options:

1. Joint Request for Restoration: A joint Request for Order (RFO) to restore the marriage status might seem like a viable option, but there is no specific legal authority or precedent in California allowing a court to "restore" a marriage status after a legal separation in the way described. The typical legal process requires a divorce or dissolution of the separation and then a new marriage to restore marital status.

2. Post-Nuptial Agreement: Executing a post-nuptial agreement that retroactively addresses the economic features of the marriage is a practical approach to address financial and property issues from the separation period. While this agreement can restore economic aspects, it does not alter the legal status of the marriage or change the separation status in the eyes of the law.

3. Restoration of Marital Incidents: If the goal is to restore certain benefits or aspects associated with marriage, such as financial or inheritance rights, a post-nuptial agreement may be useful. However, this agreement does not equate to legally restoring the marriage status for all purposes, such as tax or legal status.

4. Remarriage: The most straightforward legal method to fully restore marital status is to go through a divorce and then remarry. This process officially terminates the separation and re-establishes the marriage.

Navigating Legal Separation and Dissolution in California: What You Need to Know

If you’ve recently moved to California and are considering legal separation, it’s important to understand the process and requirements. Here’s a breakdown of what you need to know about filing for legal separation and converting it to dissolution, along with the disclosure obligations involved.

Starting with Legal Separation

In California, a couple who has recently relocated to the state can file for legal separation immediately. This option allows you to address the terms of your separation without terminating the marriage. After six months, you have the opportunity to convert this legal separation into a dissolution (divorce).

Disclosure Obligations

During a legal separation action, both parties are required to meet disclosure obligations. This includes exchanging financial information to ensure transparency. The law stipulates a 60-day time frame for serving disclosures. This is the latest date by which the responding party must be served. If disclosures are not provided by this deadline, the responding party can compel disclosure.

Mediation and Disclosure Preparation

It’s worth noting that filing a legal action is not a prerequisite for starting mediation or preparing disclosures. However, if you proceed with mediation or other settlement discussions, a court cannot issue a final judgment without a declaration of service of disclosures on file for both parties. This ensures that all necessary information has been shared and reviewed.

Converting Legal Separation to Dissolution

When you’re ready to convert your legal separation to a dissolution, you’ll need to file a new Petition with the court. This petition should be marked “Amended” and should request dissolution instead of legal separation. This step finalizes the process of ending the marriage and allows for the issuance of a divorce decree.

Summary

Understanding the nuances of legal separation and dissolution in California can help you navigate the process more effectively. From meeting disclosure obligations to converting a separation into a dissolution, being informed about each step can make a significant difference in your experience.

Understanding Depreciation and Amortization in Child Support Calculations: A Closer Look

When it comes to determining income for child support calculations, certain deductions such as depreciation and amortization can become points of contention. This blog post aims to provide clarity on whether amortization, specifically related to business start-up costs, should be considered an expense that reduces a party’s income for the purposes of calculating child support in California.

Depreciation vs. Amortization: Key Differences

Depreciation is the process of allocating the cost of a tangible asset over its useful life. For example, in a manufacturing business, specialized equipment that must be replaced periodically incurs real economic loss over time. This loss is recognized through depreciation, which spreads the cost of the asset over its useful life.

Amortization, on the other hand, refers to spreading the cost of an intangible asset over its useful life. This often includes start-up costs for a business. Like depreciation, amortization is a non-cash expense, meaning it is a conceptual cost rather than an actual out-of-pocket expense.

Legal Considerations in Child Support Calculations

Under the new Family Code Section 4058, effective September 1, 2024, annual gross income for child support calculations is defined to include:

• Income from various sources such as wages, salaries, bonuses, and rents.

• Income from the proprietorship of a business, reduced by expenditures required for the operation of the business.

The critical issue is whether amortization should be added back into the income for child support calculations. While depreciation and amortization are both tax deductions, they do not involve actual out-of-pocket expenses. Therefore, they are not traditionally considered allowable expenses for child support purposes.

Insights from Case Law

In the case of Marriage of Hein (2020), the court examined the treatment of depreciation and section 179 deductions. The court held that:

• Depreciation for equipment and other business assets, as well as section 179 expenses, should not be treated as statutory deductions in calculating income available for child support.

• The reasoning is that depreciation and similar accounting entries do not involve the actual outlay of funds in future years. Hence, these should not reduce the income available for child support.

Practical Implications

Given the court's stance in Hein, it is likely that amortization related to business start-up costs will also not be treated as a deductible expense for child support calculations. The underlying principle is that child support calculations should reflect the actual income available, excluding non-cash deductions like depreciation and amortization.

However, there are some nuances to consider:

• Economic Reality: In businesses where depreciation and amortization reflect real economic costs, such as the replacement of specialized equipment, there may be an argument for considering these deductions in child support calculations.

• Tax Implications: Depreciation and amortization are part of the actual tax calculation. Ignoring these could result in an inaccurate representation of net spendable income.

Conclusion

While the Family Code and case law provide guidance, the treatment of amortization in child support calculations can still be complex. Each case may require a detailed analysis of the business's financial situation and the actual economic impact of these non-cash expenses.

For individuals dealing with these issues, consulting with a knowledgeable family law attorney is crucial to ensure that child support calculations are fair and accurate. If you have questions about how your business expenses might impact your child support obligations, consider seeking professional legal advice to navigate these complex financial considerations effectively.