I am frequently asked if creating a living trust prior to marriage will protect the assets, specifically a home, in the event of a divorce. The answer is, probably not. The question is much more of a family law question than an estate planning question. First, transferring the home into a trust will not protect it in the event of a divorce. Having married without the benefit of a prenuptial agreement to the contrary, each of the spouses’ incomes will become community property from and after the date of marriage. Using any of that community income (whether held in a separate account or not) to pay the indebtedness on the home, will result in each spouse acquiring a community property interest in the home. You then have what is referred to as a “commingled” asset, part separate property and part community property. Division of commingled assets in a divorce can follow any number of different rules depending upon a variety of factors, including the mood of the judge on a particular day.
To avoid this situation, you need to have a well prepared prenuptial agreement which would include a provision that the home would remain the sole and separate property of one of the spouses, even though community property funds may be used to pay the debt.
(A reminder that this blog applies to California residents and is based on California law).
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