Are You Married?

There is a common misconception that California honors “common law marriage” after seven years of living together.* 

*(The misconception sometimes has a different number of years associated with it.) 

In California, there is NO common law marriage. There is NO seven year rule (or any other year rule) to establish a marriage. The only way to be married in California is to marry with a state license and certificate from the county clerk. 

And if you’re not married, then under the law, you and your significant other have no more rights than roommates. 

There’s no legal in-between. 

If you live with your significant other for 50 years, you’re still not married. If you have children together, you’re still not married. If you share ownership of a home, you’re still not married. The only way to be considered married is to actually get married. 

So why is this significant? Well, in sum: married couples enjoy benefits that unmarried couples do not. Married couples are considered family (e.g. for visitation in a hospital, healthcare benefits, or even inheritance); they can own community property (which has its own benefits); and they have different tax treatments. 

A registered domestic partnership is also not marriage. Although California recognizes domestic partnerships, the federal government does not. The federal government only recognizes marriages. 

So that marriage certificate is not just a piece of paper. It has major consequences and impacts on your rights, benefits, and obligations. If you would like to discuss how your situation would be affected by getting married (or not), please contact us for a free consultation.

Estate Planning for Noncitizen Spouses

Today, 44% of Californians were born out of the state. And the proportion of foreign-born residents (28%) is nearly double that of transplants from other states (16%). From an estate planning standpoint, the big-picture concepts hold true whether or not someone is born in California. Non-Californians own property just like Californians do. Similarly, most everyone has loved ones who they care for most, regardless of citizenship or residency.

However, tax treatment is different depending on one’s citizenship and residency. Complications arise when one or both spouses in a married couple are not U.S. citizens.

If you and/or your spouse are non-citizens of the United States, then two major concepts will play a role in your estate plan: 1) the Unlimited Marital Deduction; and 2) the Gift and Estate Tax Exemption.

1. Unlimited Marital Deduction
   Married citizen couples enjoy a tax benefit called the “unlimited marital deduction”. Citizen spouses can transfer property back and forth between each other⁠—lifetime gifts or transfers on death⁠—and it is never a taxable event. Non-citizen spouses do not get this benefit. If your spouse is not a U.S. citizen, and you give them a gift, then it is only tax-free up to $154,000 a year (in 2019). (This amount is indexed for inflation). For example, adding your non-citizen spouse onto the title of your family home could potentially become a taxable gift. Or upon the citizen spouse’s death, the non-citizen inherits all of the marital assets without the marital deduction. Thankfully, estate planners have techniques, like a Qualified Domestic Trust, to assist non-citizens avoid unnecessary taxable events.

2. Gift and Estate Tax Exemption
   Married couples who are both citizens, or if they are legal permanent residents (green card holders), are granted a unified gift and estate tax exemption. In plain terms, if citizens or green card holders transfer property in the amount of $11.4 million (in 2019) or less then no gift or estate taxes are owed. (This amount is also indexed for inflation). That amount includes all lifetime gifts with whatever you own at death. In large part, citizens do not need to worry about making transfers to their citizen spouses. However, non-citizens only receive a $60,000 exemption from the gift and estate tax. That’s not a typo. Leaving property to a non-citizen could result in a lot of estate taxes without proper planning. For more about the gift and estate tax, read our previous blog post.

Putting the above concepts to work, if spouses transfer property between each other, and the recipient spouse is a non-citizen, then the marital deduction is nonexistent, and the citizen spouse would have to employ their gift and estate tax exemption, if they have one, where they otherwise would not have to. Then later, if the non-citizen spouse passes property to any children, the non-citizen spouse would not have the gift and estate tax exemption a citizen spouse would have. The result could be an avoidable disaster.

Non-citizens largely have the same desires and wishes that citizens have. Their legal status is merely different than that of citizens. However, that legal distinction does create challenges for which a plan is necessary. Do not leave your loved ones with an undesired mess. Get ahead of the issues by planning now.

Married: You Either Are or You Aren't.

Have you heard that story about the couple who lived together for seven years, and then they accidentally became married? Or what about the one where your friends were in a “common law” marriage?

Well… they’re both bogus concepts. At least in California. We don’t even know where the “seven year” part came from.

In California, you’re either married with a state license and certificate from the county clerk (and a few other requirements) or you’re not married. Period. There’s no intermediary status. There’s no “common law” marriage. You can’t accidentally find yourself in a marriage. The law doesn’t care how long it took your significant other to propose, or the size of the ring… or whether there was a ring at all! There are a dozen or so states that recognize “common law” marriage, but we’re not one of them.

So how does the law view your live-in significant other? You know, the person you’ve been living with romantically for years?

To put it simply: short of marriage, the law views your significant other as a roommate. It doesn’t matter how long you’ve lived together, whether you have children together, or whether you share ownership of property. You need that marriage license in order to be considered lawfully married.

Married couples enjoy benefits that unmarried people do not. Married couples are legally considered family (for example: when visiting one another in a hospital, or for inheritance purposes, or for health care benefits). Unmarried couples cannot own community property. That’s only for married couples, too. Also, tax treatment for married couples is dramatically different than for an unmarried couple.

You may have heard of “Registered Domestic Partners”. Or just “domestic partners”. But that has its own set of requirements, and is governed by state law. It doesn’t happen accidentally or automatically. And it’s only recognized in a few states (including California), but not by the federal government, like marriage is.

A couple’s decision not to marry does not detract from the love, trust, support or any of the interpersonal relationship benefits married couples can share. However, it is important for an unmarried couple to know that the law treats couples in vastly different ways based solely on marital status. A marriage certificate may literally be “just a piece of paper” but that piece of paper has important legal ramifications.

If you would like to discuss how your situation would be affected by getting married (or not), please contact us for a free consultation.

Everyone Needs an Estate Plan (Examples 2 & 3)

Estate planning is much more than just death planning and giving away your stuff after you die. It’s also about planning for circumstances that you may not have anticipated. 

This post is the second installment in our "Everyone Needs and Estate Plan" series. If you missed Example 1, click here to read it.

Example 2: You are married, and you have a couple of children. Now imagine that you and your spouse divorce. Neither of you have done any estate planning. If you or your now ex-spouse remarry and die before his or her new spouse, you could have unintentionally just cut your kids out of his or her inheritance. Without proper planning, by default, your estate goes to your surviving spouse, the person you were married to when you died. In this example, the surviving spouse happened to be someone who is not the parent of your children. At least some of the assets you may have intended on going to your children are now in the hands of someone unrelated to your children.

Example 3: Same facts as Example 2, except neither of you remarry, and instead you both tragically die. Your children are still minors (under the age of 18) and lack the legal authority to make legally-binding decisions on their own (enrolling them in school, going on field trips, renting an apartment, making financial transactions, etc.). Because you did zero estate planning, we now have two orphans who need legal guardians. Well, you never got around to telling the world who that should be in a legal document. So whoever thinks they should be your children’s parents goes off to court, and hopefully the court makes a good decision. That's probably not the way you want it to play out.

Check back next week for another example of why everyone needs an estate plan. If you would like a free one-hour consultation to discuss your estate planning goals, do not hesitate to contact us.

Everyone Needs an Estate Plan (Example 1)

Estate planning is much more than just death planning and giving away your stuff after you die. It’s really about choosing decision makers for those moments when you cannot make your own decisions. Sure, you cannot make your own decisions after you have died. But there are several other times when you can end up incapacitated (meaning, you cannot legally make your own decisions) and yet still be very much alive. Without proper planning, you may leave your loved ones stuck in a tough place if you ever become incapacitated.

Over the next few weeks, we're going to walk through a few examples.

Example 1: Imagine that you and your spouse have decided to take your young kids skiing. As you’re taking photos of the little ones having a blast, you don’t realize that you’re headed right for a tree. Before you know it, you collide with the tree, you’re out cold, and you’re rushed to the hospital.

The good news is that you’re still alive. The bad news is that you’re now incapacitated. You’re unable to make your own medical and financial decisions. This could last for hours (medication), days (coma), or a lifetime (permanent brain damage). It’s now up to someone else to make those decisions for you.

Your spouse decides that he or she is going to step in and make decisions for you, including handling your finances, dealing with the insurance company, dealing with your boss, and maybe suing the ski resort. Unfortunately, you didn’t do any estate planning, so your spouse now has to go to court and have a judge issue an order that allows your spouse to make those decisions for you. This is the key: Your spouse can’t do any of the above without the appropriate authority.

You see, just because you’re married doesn’t give your spouse the legal authority to make decisions on your behalf. You have to give your spouse (or someone else) that power before you become incapacitated. This is commonly done in a power of attorney.

The same principle applies if you have children over the age of 18. Unless your child has given you the legal authority to make decisions on his or her behalf (for example, via a power of attorney), you need a court order to have that legal authority. And getting a court order when your child or loved one is incapacitated can be stressful and overwhelming, not to mention expensive. This is why it’s important to plan ahead.

Check back next week for another example of why everyone needs an estate plan. If you would like a free one-hour consultation to discuss your estate planning goals, do not hesitate to contact us.