Prenups & Postnups

Good afternoon, everyone. My name is Erica, and I'll be moderating today's session. Before we begin, please note that this webinar is being recorded for compliance and recordkeeping purposes. All attendee identifying features have been disabled to protect your privacy. Your video, audio, and participant information will not be visible at any time. For questions, please use the chat and direct your message to host and panelists. Our moderator will review submissions and may read selected questions aloud anonymously. By staying on, you acknowledge and consent to the record— to the recording of this session. Thank you. I'll now turn it over to our panelist, Daniel Farid Yasharel. He's a Certified Financial Planner and Certified Divorce Financial Analyst with over 40 years of experience.

Thank you, Erika. I'm very excited to introduce our guest expert today, Scott F. Levin, an award-winning family law attorney, mediator, a professor at law school, and the founder of San Diego Divorce Mediation and Family Law. Scott is one of the highest-rated mediation attorneys in California, known for his 5-star practice and his commitment to helping couples reach peaceful, cooperative agreement without litigation. After years in traditional family law, Scott chose to focus entirely on mediation because he believes families, especially children, deserve solutions built on collaboration rather than conflict. We are honored to have him with us today. Scott, the show is yours now.

Thank you, Daniel. Thank you for joining us, everybody. I think you probably just heard the most professional part of the presentation today. But Daniel, you always look good and sound great. So we're here to talk about divorce in California, how that intersects with real estate and inheritance and protecting your wealth, and basically how prenups and postnuptial agreements can help you structure your own divorce outcomes at a time when you're collaborating, you know, and thinking positively about the future. But before I begin, let me just say a couple things about prenuptial agreements. They are very important, and you're going to hear me talk about, you know, a lot of the benefits today, but they are also extremely Important documents. They are not to be trifled with. When I represent a lower earning capacity spouse right now, I have one or or fiancée right now. I'm representing a woman who's a nurse and and her soon to be husband's a doctor. The agreements she's making in her mid or late twenties, if they're married twenty years. are going to be immensely impactful on the quality of her life going forward. So we're not going to talk a lot about spousal support and alimony, aka alimony, today. But, uh, you know, if you put waivers in, in your prenuptial agreement that say, hey, I don't get spousal support, or I live— I agree to limit spousal support, um, which a lot of higher-earning people want the other to do, then you should assume that's exactly what's going to happen in the event that you divorce. Um, and, um, that can be— I've seen so many people be huge, have huge impacts on their life and quality of life, you know, 10, 15, 20, 25 years after signing this document. Um, and so it's just really important that you have good counsel, that you have good advice, that you're thinking about the future and playing out scenarios in your head when you're negotiating these documents, because they should not be signed willy-nilly. And I just wanted to mention that. So we're going to talk about a lot about the benefits, but they— there are pitfalls if they're, you know, not done in the best way. All right, so let me figure out how to do this. I'll share my screen here. Okay, so generally speaking, nothing says romance like a legal contract, right? Oh, last thing before we start going into the substance. If my wife is here, I just want to mention to her that all of her inheritance is separate— sorry, is community property. No matter what I'm about to say, for her purposes, that's community property. So why, why, why are we here today? What, what are we trying to understand? And what are we trying— and how do prenuptial and postnuptial agreements impact, you know, your situation in the event of divorce? Well, California. Let me just say that again. California. For those of you who are here, do you want California law and California family law attorneys to dictate how your divorce is going to go in the future? Most people don't want California involved in their lives, and the default rules and laws that California has for, for divorce are, are oftentimes vague, and you can literally have 2 Good-meaning, well-meaning, smart lawyers look at the same issue and legitimately have a complete opposite of opinions about how that issue should be resolved in a divorce. So they are vague. There's a lot of vagary in California family law, and so you don't want to be susceptible to that vagary if you can avoid it. And real estate in particular, those are oftentimes for my clients, those are the biggest assets that they have. And, and how to divide their home is, is often the, the beginning and the end of the divorce process. We have to figure out how to— what to do with the home oftentimes before you can do anything about custody or, or, or support, because you need to know where, where you're— if one of you is going to live there or not after the divorce. Or both of you. So, you know, inheritance and real estate, really, really, really important issues. But, and let me just give you the framework too.

Sorry.

In California, community property is equally owned by spouses. And in California, community property is all property acquired during marriage. And then there's separate property. Separate property is owned by the person, by the individual, and it's not divided by California law in the event of divorce. And separate property is defined as any property acquired before marriage or acquired during marriage by gift or inheritance. The problem with separate property is that it can often very easily become partly joint property and partly separate property by what's done with the separate property during marriage. If you take separate property and you put it into joint accounts, that's called commingling. And you can commingle your separate assets so that they are no longer separate. And it is so easy to do, and the rules are very skewed Towards all property being community. So if you're a person that's saying, hey, this should be separate property, the burden is on you to show all the evidence about why. Without that evidence, you don't get it in court. And in mediation, you know, you still need that. You still need to show it. If you show it, you can get it. But try showing statements going back 20 years on something when you were weren't thinking that you were ever going to be divorced. So, a prenuptial agreement is a legal agreement that allows you to set the rules for how your property will be divided and defined in the event that you divorce later. So, in a prenup, you can say, hey, we agree that this group of property, this— these assets will always be separate property. So, no matter what happens with them, This house will be separate, my property. Your 401 will be your property. Um, this— so you identify what's separate property, no matter what's going to happen during the marriage, that you would get that back in the event that you divorce. And so that can be setting up, deciding decisions about how ownership over houses, investment properties, retirement assets, businesses.

Mm-hmm.

And inheritance and debts. And also you can decide about, you know, how to pay for living expenses during the marriage and how much you're going to contribute and how. So you can really have a lot of thoughtful conversations about how you're— how the— how you and your spouse will be living financially during the marriage. But you're also really collaborating about what will happen in the event of divorce. But it's not that you're planning on divorce. What you're trying to do is plan out financial certainty. You know, prenuptial agreements and postnuptial agreements, they remove, like, the financial landmarks that weigh and damage relationships over time. So you're really protecting yourselves, your kids, your futures by getting a prenuptial agreement and, and, and doing it in the right way. Now, When I see— what I mean by right way is that we're not trying to defeat the other person. We don't want to make— we don't want to drill the other person into the ground to the point where they feel like they got a raw deal. If you're a parent of a child that you want to get a divorce, a prenuptial agreement, that other person that they're marrying, you know, they're the mother or the father of your grandchildren. And they, um, and they will be resentful if they feel like they were manipulated into a prenuptial agreement that wasn't fair to them. And I have a client right now that we met last night for mediation where she explained that she, um, never received the prenuptial agreement that she signed at 23 years old. Now, this is— she's in her early, um, 40s now, uh, never saw it before she was expected to sign it. Her father-in-law got her, her attorney, and they were friends, and she never met that attorney before the day she signed the agreement. Now, that is some— a situation that happens all the time, and, and it should not happen in your case. You want the prenuptial agreement to be enforceable, and so getting proper attorneys for both sides and, and having really, really good discussions and negotiations is what you want. You don't want to set this up like, hey, take it or leave it. It's you get nothing, I— this person gets everything under all conditions. You have to negotiate. You have to have give and take. You're not trying to defeat the other person. You don't want to set yourself up so that the other person feels like they need to divorce you because they just can't— they just feel like they know that their, their prenup was unfair and it just weighs on the marriage over time. You're not trying to accomplish that. You're trying to accomplish positive results, not negative. So, postnuptial agreements are the same thing as a prenuptial agreement. It's just a marriage— it's an agreement between people that are already married. And so it deals with the same issues and can bring— basically, most of my clients that get postnuptial agreements, they feel that If this, if this issue with their finances could be resolved, then they could really have a successful marriage. But the, but the issue that is bringing them to the table is so important that it's weighing down the marriage and it's putting it at risk. So what does that look like? So, for example, people that inherit, like, you know, I have a client that inherited $1.5 million, and now She's worried that over time that money might be spent on community expenses, in which case she wouldn't get it back. She's worried that that money might find its way into joint accounts with her, with her spouse, and that that joint account has both her inheritance plus money that's earned during the marriage, and that so it would be commingled. So, so in order to protect that, You can have a postnuptial agreement that says, hey, no matter what, that $1.5 million will come back to this person in the event of a divorce, so that you don't have to worry about where that money goes or how it's spent and feel like you're giving it up. So, and then a very successful— so someone that has a business that really took off during marriage, that's the other very common scenario. Where the couple is worried about what would happen to the business if they divorce. Divorces with businesses are much more complex often than without businesses. And so getting certainty around, you know, who would own the business, how it would work, how a buyout would work, how you would set that up, who has the rights to voting shares, all those sort of details. can be worked out in advance in a postnuptial, and again, relieve the pressure on the marriage. So the one really important takeaway I want you to have from this process, from today's discussion, though, is that any prenup or postnup can be contested later by one person. So if they're not happy, they can say, I don't agree that this is valid. And then, you know, it's just really up— hopefully you won't end up in court, but if you do, it's expensive to contest a prenup and, uh, or a postnup. And it's, um, a whole process that goes on before the divorce, and then the outcome of that decision, then you start the divorce. So it really delays things as well. So I want to just give you the best possible setup for doing the prenup or postnup. Is if the couple hires a mediation lawyer like myself. So I mediate where I'm working as an impartial between both sides to a divorce— I mean, sorry, to a prenup. And so I'm— we're all collaborating together, coming up with the terms together, meeting together, expressing our concerns together, our hopes, our wishes, our desires. And then once I draft the, the, the document, then they get 2 other attorneys to to review it and make sure that they understand it, to advocate for any changes. And so I've never seen a situation where someone can contest the validity of that document under that scenario. So if you're looking for certainty, that's a really, really, really powerful way of going about, you know, setting up a prenup to— or postnup to be valid. So for real estate, Um, there are a lot of ways that houses— a house owned before marriage can become not only separate property. So if you owned it before marriage, it's separate property. However, what happens if you make a payment on the mortgage with money that is earned during marriage? Money earned during marriage is community money. If you take that money and pay the mortgage with your separate prop— to your separate property, You're creating part separate property, part community, and the community is equally owned. What happens if you retitle the property during marriage? You put your spouse on title. Well, that's a problem if you're hoping to have it be— remain separate. What happens if you refinance the mortgage and then he or she is on the mortgage? So it's a joint mortgage at that point. That creates a lot of uncertainty. What if you even— what if you refinance but you don't put them on the mortgage? However, they could claim during divorce that your— that, that the marital assets and incomes were used to qualify for that, for that refinancing. So even if they're not on the refinancing, if your income plus their income was used to qualify, and other things like that, then they can claim that that has an impact on whether it's a separate property any longer. So, figuring out what is separate and what's community and how to divide the real estate are all really central to a divorce process. And that's why doing it in advance in a prenup can really, really be beneficial. The other factor with the house is that it's not a 401, right? It's not an emotionless asset. A house is a home. It's where you raised your kids or raising your kids. It's where you live. It's where you spend the most time. And, and giving that up or dividing it is extremely personal and emotional. So it's not just a financial decision when people negotiate. How to divide their home during a divorce. It's— there's a lot of emotion behind it, and emotion can create conflict depending on the scenario. So it can be— it can get dicey around the home. Let me give you a scenario real quick about the home. Let's say that Charlie and Let's say that Charlie and Carol are going to buy a home and they're married. So Charlie calls his dad and says, hey, can you transfer— can you give me, gift me some money and put it so I can buy, so I can use it for the down payment? So let's say Charlie's dad transfers $300,000 to Charlie's account. And then Carol calls mom and asks for the same. Carol's mom transfers from her account directly to the escrow of the— for the real estate purchase. And then, so Charlie, on the other hand, the money came from his dad into his account. And then over the course of, you know, time, over the course of days, weeks between that time and when the purchase was final, he transferred money periodically from his separate account to the joint— to a joint account. And then eventually from that joint account is where he sent— where they sent $200,000, $300,000 for his portion of the down payment. So if they divorce later, because Charlie's money was mixed into a joint account with other money, that's a reason that he will not see that money. He would not be reimbursed those funds. Whereas Carol— Carol's going to be reimbursed the $300,000 that her mom gave her because it came directly from her account, from mom's account into escrow. It didn't get mixed in, didn't get commingled. The other issue will be, can Charlie prove— I mean, can Charlie prove that the funds that his dad gave were a gift to just him? If they were a gift to the couple, then they won't be reimbursed either. So he has to prove both that his dad just gave him a gift alone, and that, and that the funds were not commingled, which he won't be able to do. So at the end of the divorce, she will get the $300K back. His $300K very much, very likely not to come back. And then they divide the remaining equity 50/50 if it's community property. So a prenup would totally eliminate those issues. It would say any gifts we get from family are gifts to us, and we would be reimbursed those monies in the event of a divorce, no matter where the money goes, what account it goes into, any inheritance. All of that would just go out the window by having very simple rules about what is the definition of prop— what, what is the definition of separate property and what will happen with that property in the event of divorce? So that's a really clear indication, a really clear example of how a prenup can eliminate a lot of uncertainty that otherwise would happen.

Um, Scott, please, one question came in. Is the prenup you spoke about before unenforceable? She signed and never saw the agreement.

She saw the agreement. She never saw it before the day that she signed it, according to her.

Mm-hmm.

Never met the attorney that was representing her. So I would say in that, in the mediation, uh, the mediation is not done. We just are in our 2nd or 3rd meeting. She is saying that, uh, she is willing to basically credit whatever they each had before marriage. But she doesn't agree that all their property that they acquired during marriage is separate, which is what the prenup says. In that case, I would say that it would not be valid. There's a very— there's a rule that says that you, you can't have a representative, an attorney that's really on the other person's team. And the fact that she never spoke with that person or met that person before, the fact that that person was hired for her. Those are not good. That doesn't look good. I'm shocked that the attorneys actually did it, to be honest with you. Um, but yeah, I would say in that case, that's a classic example of, of an unenforceable document.

Uh, one more question came in. We both have our own assets from before the relationship. Isn't that already separate in California? Why would we still need a prenup if we trust each other?

Yeah, I mean, great question. First of all, I love your questions. Please ask them, because when I teach law school, I can see the students glaze over as I'm talking at them, and I don't want— I can't see you, so I'm sure I don't want you to feel glazed over. I want you to feel like this is interactive. And, and again, you know, unfortunately, people don't hire me for my personality, so I'm trying my best to be interesting here. But To your question, those assets are— that you own before marriage are separate property, but what you do with those assets during marriage can, can change that very easily. So where the money goes, if it's commingled into other accounts, um, if you use community money to pay for those separate assets, all of that can make a separate asset no longer totally separate. And it's really easy to do, um, and it happens every single day. So the, the answer really is yes. If you trust each other, that's awesome. If you— if while you trust each other, that's a great time to get a prenup or a postnup because you do trust each other, you are hopeful, you're in it together, and you're just trying to protect each other.

Okay.

So another example real quick is, like, let's say Rick and Rochelle, let's— they each have $1 million in a trust before marriage. Okay, Rochelle uses all $1 million of her money during the marriage to pay for the kids' educations, you know, living expenses, you know, medical insurance. She might have bought a property during that time. cars, art, rugs, all the things that we buy, right? Um, and, uh, Rick doesn't use any of his $1 million during the marriage. And so at the end of the— at the time of divorce, Rick not only has $1 million, but his investments grew to $2 or $2.5 or who knows what. So he has all that money, and that will be separate property because it never mixed in. It never left that account. So, 100% separate property because it was in, uh, it was, uh, in existence prior to marriage. And Rochelle is very likely not to see any of that $1 million back. She has to show records about where the money went, and she has to keep those records at the time that, that the money was exchanged. You can't go back from now and go back and keep records. It's very hard to satisfy the rules for the record keeping that almost nobody can do that. And so basically, she spent $1 million of separate property on the family, and he spent a million— he kept $1 million, and it grew to $2.5 or whatever it grew to. And so, what a disproportionate result. But that's what California law would say is going to happen to their situation. A prenup would say, hey, no matter what happens, we each get our $1 million off the top that we had coming into the marriage, and then we figure out what else to divide. So, um, just another quick example of how that, uh, uh, how the documents that we're talking about would really, uh, be impactful. So a house, um, Owned before marriage. Oh, sorry. You're getting a divorce, let's say, and now you have to decide what to do with the family home. Okay, so you can do in mediation or in litigation, you can basically do one party can buy the other out. So one, you know, dad can buy mom out, mom can buy dad out. You guys could sell the home. You could co-own the property. So the most common result that people in mediation are trying to accomplish is a buyout. So one person's trying to buy the other out. And so how do you account— what are the issues that you kind of deal with in that scenario? It happens almost in every mediation that I'm involved in. So to do a buyout, you have to first agree on the buyout amount. So what's, what's the amount that's owed to, to, to make the deal? So one way of doing that is to say, hey, the fair market value of the property minus the loan gives us the community value, and then 50% of that is the buyout. So you have a $1 million house, you owe $500 grand on a loan. So it's $500K is the community property value. 50% of that is what's owed to the person to do a buyout. That's option 1. What about though if the, if the person who's going to own the home afterwards might sell the home in 2, 3, 5 years? What about that? Then they'll incur all the realtor fees, which are like 6 to 8%, right? So what about those fees? Should those be factored in to reduce the buyout amount? So that's another issue. Do you factor in those costs of sale in the future or not? So when someone tells me in mediation, I want to own the home, I'm never going to move, I'm going to live there till I die. Well, then in that case, I would say it'd be unfair to the other person to reduce the buyout by those costs of sale because they're saying that they're never going to sell.

Scott, I have another question for you.

Yes, sir.

Question says, as an estate planning attorney, I recommend prenuptial agreements, separate trust for separate assets, and a joint trust for community assets. What is your perspective on this approach?

Yeah, I mean, I don't— I think that's great. Um, I think that, um, you know, the trusts will typically come into play when there's a you know, when someone dies. And so just designating property as community in a joint trust or designating it as separate in a separate trust doesn't have the same effect that a prenuptial agreement would have. And it doesn't necessarily change anything absent a prenuptial agreement. It doesn't change the characterization of property in the event of divorce. So if there's a trust that says this property is in a community joint trust, then that doesn't necessarily mean it's 100% community property. And the same for separate property trusts. So to gain that certainty, you would get a prenuptial agreement, which is about what will happen if we divorce, whereas a trust is really in place to take, take effect in the event of the, you know, the death of a party.

Okay.

So, back to the buyout. So, you have to figure out how to get what the buyout amount is, and then you have to determine how to get the money to the person. So, you know, is there gonna be a pay plan over 3, 4, 5 years? Are you going to transfer cash upfront to the person being bought out? Are you gonna say, hey, Um, take $100,000 from my 401, and then I'll give you $200,000 over here from in this stock account? Are you going to piece it together that way? Um, so you have to make sure that both parties, whoever is doing the buying out, can actually perform. Like, where's the money coming from? And if the, if the buyout amount is not going— like, some of my clients will say, hey, I, I want to pay them, you know, within 7 years, I'll give them the full amount. Well, 7 years is a long time out. So what I often say is, if it starts to get that timeframe, you know, anything close to that, I say, hey, maybe you guys should co-own the home during that time. And then the buyout would be based on the, on the fair market value, you know, 7 years from now, which is more fair to the person being bought out. Why lock in the buyout on today's value when you're not getting paid, you know, for 6, 7 years? So. All these things are nuanced and they're, and they're unique to each case. But these are the sort of things that you have to go figure out. Last issue that I want to mention when you're doing a buyout is what happens with the loan. So if there's a joint mortgage, if the person being bought out wants off the mortgage, there's really just 2 options. You can do a loan assumption So the person who's going to own the home assumes the loan, and it keeps the same terms intact. It doesn't change the loan, just removes the other spouse. Uh, and, and that's the ideal scenarios, but you have to qualify on your own, as if you— like, you have to qualify for the loan. So the bank has to approve you, and if you already have a divorce case that's opened You can't apply for a loan assumption until you either have a signed marital settlement agreement— so you have to have a signed settlement— or that settlement has to be approved by the court, which is 2 or 3 months after the signed settlement. So essentially, you will be applying for a loan assumption after the divorce process, after you've submitted your agreement. So your agreement has to talk about what will happen If we— if the loan assumption works, awesome, then, then it's done, right? What happens if the loan assumption is not approved? Then you have to say that, uh, that you will refinance or you'll sell at that point. If you're refinancing, we have to make sure that, you know, if the loan is going to go from 2.95% to 5.85%, you know, we have to make sure that the payments can be made. So there's just a lot of planning. So it's about— What's the buyout amount? How is it getting to the person? And what's happening with the loan are really, you know, very, very common, very, very important issues, all of which you could set out in advance in a prenuptial agreement or a postnuptial agreement. You can say this is what's going to happen with the home, or this is who we have the right to first refusal to purchase the home, and here are the terms. Here's how we figure out the equity. All of that could be answered in advance, and the math doesn't change just because you don't know necessarily where the home is or what, what is the home. Doesn't matter if you're setting out the rules. It's fair to create those rules in advance as it is to have to create them at the time of divorce. There's no difference in my mind. So as long as both parties are represented and everyone understands what they're doing. That's really— it really can save you tremendous heartache and give you certainty about the family assets going forward. Daniel, did you have another question?

Oh, yeah. One more question came in. I don't know if it's the time to ask or not, but we are not getting divorced, but our finances are messy after Over 10 years. Why do couples even do prenups, postnups? What are the real reasons?

Yeah, it's usually when there's a change in circumstances. So you inherit property, and let's say you inherit, you know, a residential— you inherit an investment property building, you know, with 20 units, and If you— that income is separate. So you have the investment property is inherited, and so the income stemming from that separate property is also separate. But what happens with that money if you transfer it into joint accounts, like I said before? So there's ways to make those properties not entirely separate, and the money's not entirely separate. So That is a very common reason. Someone inherits money and they want to make sure that they have an agreement that says, hey, no matter what happens, that inheritance comes off the top of any division of assets. That no matter if the building is sold and converted into Van Gogh art, you know, one-of-one original, or it's, you know, kept and the money flows into the joint accounts or whatever happens with it, it's all coming back to To the the person that inherited the money, so inheritance and then just a change in circumstances like a business that really takes off or something that the people that the parties didn't anticipate you know has occurred and it's concerning one of them. They're really worried about it, and it's making the marriage it's impacting the quality of the marriage, and so they don't want to get divorced, but they need this thing resolved in order for them to really you know. For them to thrive and have the life that they're hoping for. Okay. So in general, let's see. Okay. Sorry, I was just looking at my notes. So when you're going through a divorce Um, process in California, uh, majority of people choose to hire attorneys and go to court. And that's just kind of the default. Um, and when you do that, before you know what you've really decided on, you're stuck in kind of a limbo period, a 2-year-long divorce, even if your spouse and you think that it's not that complicated. You're kind of on the timeline of the court and the lawyers, and everything is kind of out of your control. A prenup, a huge benefit of prenup is that you would basically dictate what would happen, how that process would go in the event of divorce. So, what will happen? How do we agree that we will mediate a divorce? What mediation is, is that you each hire the same mediator. And then that person can guide you through a settlement, and you don't have to go to court. You can have attorneys on the side, but you don't have to. And it lasts, you know, 2, 3, 4 months instead of 2 or 3 years. And it's a lot less expensive, and it's better for your kids because there's, there's less fighting. So another big benefit of a prenup is just getting how the divorce process would work in the end. So we talked about some real estate issues, and inheritance is another huge part of, of, of divorce and, and, and prenups. So, uh, our clients want to know with certainty that their inherited funds are going to remain their separate property. That's a big reason why people get marital agreements. However, it goes beyond that. Uh, grandparents and parents want to feel certainty that they can give to their kids and grandkids, and that that money won't be lost in the event of a divorce. So it's not just giving the, the couple certainty about what would happen to their inherited funds. It's giving their family members the ability to safeguard their inherit— their— the funds that they designate as inheritance funds for their family, and that it stays separate in the event that that relationship doesn't work out in the end. And so inheritance funds, just like any other assets, they come in as separate. But how, how can we— how do we think that inheritance funds can change from separate? To not separate? Well, just like anything else, you take those funds and you mix them in with other money, or you bring— or you have those, those, uh, the properties that you inherited and you pay the mortgages for those properties with your income during marriage. So all of a sudden you've converted your property from not 100%— from 100% separate to something different. Um, and it's so easy, you have no idea. The rules— again, the rules are on the person— require the person that claims the property is separate to prove it. And to prove it, you have to have records, records going back to the time that the transactions took place, when you made a payment to a mortgage that's on a separate property. Where did that money come from? If you can't show that it came from a separate account or it came from a— if you don't have that evidence, then you're not going to get credited with that separate property. So it can happen so easily because people don't think that they're going to end up in divorce, you know, 12, 15 years before when they're making these original decisions.

Another question came in. Are my retirement accounts still mine if I open them before the marriage? Or does my wife get part of it?

Yes. So the law says that what you had during— what you had at the time of marriage. So let's say you had $400,000 in a 401 at the time of marriage. So that's separate property. And then what that $400,000 grows into during the marriage is also separate property. The remaining balance of the account would be community. So what you contributed to it during marriage and the growth in that value is community. So, um, that's how you would differentiate. So the answer is it's both separate and community, most likely. Now, if you had a Roth IRA that with $100,000 in it at the date of marriage and you never added one cent to it during marriage, it's 100% separate. But most people create additional retirement and fund additional retirements during marriage. And what a prenup would say is, hey, it doesn't matter what happens with that account, where the money comes from. If I had— if that 401, my, you know, your 401 is entirely yours no matter what. My 401 is entirely mine. So you eliminate the uncertainty, you eliminate the need to keep records and do, and, and, and do divorce math at the time of separation. Or you could say that any assets acquired, you know, any retirement that's acquired during marriage is community property. I mean, you don't have to keep everything separate. So it's— you negotiate these things in the prenup. But whatever you negotiate, whatever you agree to, Simplifies a divorce because it's already been figured out for you. Did you have any other questions, Daniel?

A few came in, but you already answered them.

Okay.

Basically, one of them was, what if one of us built most of the wealth during the marriage? Is it automatically 50/50 no matter what? Well, that's a good one.

I could use— I mean, that's that. I have a case right now where someone works a very high-powered job. Uh, they're— I'm mediating because I don't litigate cases. I choose not to anymore. Um, and so in this case, it's pretty unique. The person is asking— he, he's employed as kind of a high-powered situation, and they've earned a lot of money during the marriage, which is all community money. But they're negotiating a settlement which basically would award him a little bit more than 50% because It's his— his claim is that his talents generated that money. And, um, even though that's not what the law says— the law says it's 50/50, it doesn't matter where the money came from— in this case, they're negotiating something to kind of assign him additional, uh, funds. Um, probably something around like, you know, 57/43 if I had to guess. It's not settled yet, but— So my job as a mediator is to say, hey, you know, that doesn't matter. Wherever the money came from, it was acquired during marriage. It's community property. But in mediation, you can make your own rules. And if you're willing to agree to things, then you can negotiate those things.

I have another question. This one is personal. Could you Discuss the importance of having a certified divorce financial analyst on the team.

Yes, yes, absolutely. So, um, I'll call it a CDFA. And, uh, at the time of divorce, a CDFA is a person that will evaluate financial settlements from, from different perspectives and help you understand that You know, the total dollar figure that you're— even if the total dollars that each person's getting is equal, the impact of those dollars can be different. So, 401 money is not the same as cash in your Bank of America account. Roth IRA money is not the same as 401 because it's post-tax. It won't be taxed additionally. Um, so evaluating Not just making sure that you're getting the right dollar figure or value, but how those— how the division that's being proposed will affect you in year 1, in year 3, in year 7, projecting down the road how things— the division will affect each party and showing you, you know, here's your projected net worth over this period of time. Here's the projected net worth of the other side based on these assets. And that's just one example, but also a huge issue, Danielle, I'm sure that you deal with all the time is like, you know, people, especially moms, want to keep the house for the kids. But they oftentimes are giving up every possible asset, all the cash, all the retirement, the pension to make it happen. And it's a very scary decision because the house has a lot of liabilities built into it. And yes, California real estate has gone up over time, but, you know, a CDFA is going to help you decide, is this a smart move? Is this a disaster move? If you do this, are you asking for trouble? So just giving certainty, taking the guesswork out of your settlement discussions, and a mediator can do some of that, but not really. I mean, we spend most of our time really Um, you know, delving in on what the settlement terms are, and I'm trying to make them equitable, but the division of different assets, and it's really, you know, those things are better discussed with your own CDFA, and, and you come in with your own proposal based on those discussions. What do you think the biggest impact of a CDFA is, Daniel?

Well, the CDFA knows the tax laws. Knows the financial planning aspects, the income planning portion of it, and basically anything that has to do with the wealth management and income produce— producing of income, budgeting, cash flow, and all of them together. As you said, someone may just get the house, and we have seen it. both you and I, we have seen it. The wife gets the house with 4 kids and there is really no cash flow. So what are you going to do now?

So dangerous. Yeah, it's scary. And a lot of people don't realize how expensive they are, right? Like, you know, this goes out, a leak here, you know, the property insurance is out of control in California. So it's just a very— it can be very expensive. I'm, I'm— I always make my clients in mediation get a CDFA if they're making a decision that I view as very risky, just to consult with one even for 2 hours, just because I want to make sure that they know what's— again, CDFA specializes in not just what's going to happen in month 1, but how does this look down the road? Because, right, like, divorce isn't about year 1 necessarily. It's about down the road. How does this look? Um, also, great use of CDFA is, uh, you know, um, when people try to get creative for spousal support, like doing a spousal support buyout. So instead of paying spousal support or receiving spousal support monthly for, you know, 12 or 13 or 15 years or however long, um, you know, you would get an agreed-upon buyout amount up front. And then no more, no, no more, no spousal support beyond that forever. And so, is that a good deal? Well, it depends on— someone needs to help you understand what's the investment benefit to having that money up front. What will that money turn into if invested wisely? Daniel certainly is an expert on it.

I have— Well, I saw a case, uh, the The wife got $3.5 million upfront. The first thing she did, she bought a condo somewhere here in LA around $1.8 or $2 million. And then she took a couple of first-class exotic international trips. So after about 2.5 years, less than that, she was out of money. Okay, I mean literally now. Then there was she came to me. There was nothing I could do. So you have to have the discipline, and you have to have someone who would help you and coach you what to do with the money.

And a lot of people never have made those financial decisions with that sort of money before.

Another one was another one. One of the spouse got the money from the 401k of the of the. Other spouse, and she took everything out, paid— did not pay the tax on that, and now the IRS is after her.

Yeah, yeah. During the divorce process, just so everyone knows, when you take— you can actually, if you're trying to take money from a 401 and put it in your bank account, you can avoid it. So there's a one-time freedom avoiding the 10%, like, a penalty that you get charged for this with an IRA or, or a 401, but When you just— when you take the money out and you cash it out, I always suggest— and I don't know if in this case I would have told that person— they should let the taxes be taken out at the time of transfer. So they don't— they— yes, they'll reduce the amount that they're getting because the taxes are pre-reserved. But like, then you don't have to worry about what's coming.

Yes. So those are the little things. That a lot of people are not aware.

Yeah.

So that's, that's the role of the CDFA to make sure. For example, if someone needs money right after the divorce, and if the 401 goes into— if the 401 on a QDRO before goes to an IRA, they can take the money out as much as they need and just pay the tax. But if it's rolled over into an IRA, And then they want to take it out in another 2 weeks. And if they're under age 59 and a half, then there is a 10% tax penalty. A little, little thing that a lot of, unfortunately, tax professionals are not aware of.

Yeah, I have a great one. I mean, with— for people that are doing like a spousal support, you know, buyout, like I said before, just getting an upfront payment. Sometimes they will come like the payer will say, hey, or even doing a house buyout, it doesn't matter. Like they could say, hey, I owe you $300,000 for the house, but I want $200,000 to come from my 401. So they want to say transfer $200,000 from my 401 to your IRA and then count that as $200,000 towards the buyout, and then I'll give you $100,000 in cash. Um, so that they're getting the, the same dollar amount to the person, but they're giving 2/3 of it as 401 retirement money. So the question is, when that person says, okay, I'll do that, but I'm going to cash out the 401 transfer into cash, and so I'm going to put that in my bank account, they're not ending up with $200,000, right? Because they're paying the taxes. So a CDFA— I love when a CDFA gets involved In a case like that, because they'll tell their client, who's my client, hey, you should be getting— they should overfund that 401 transfer. It should be $231,000, not $200,000, because $231,000 will get you to $200,000. And that's really the number that you're supposed to get. You're not supposed to get $200,000 that turns into $160,000. And so that's, that's really, really powerful. Just a little example of how, you know. They work in mediation.

Another question came in. We are in our 50s. Is divorce way more financially dangerous at this age?

Well, people live longer these days, right? So, I mean, that's called silver divorce— divorce when you're in your 50s or beyond. And it's the biggest growing segment of divorce, just so you're aware. And I think that goes into The, the former biggest growing was, you know, under 30, but kids are getting married later. So, um, so the biggest growing segment of divorce is silver divorce. And the issues are, you know, there, it's, there, it's not like military divorce where there really are unique, totally unique issues to the, to that group that don't exist with others. But in silver divorce, it's, it's a lot. There's a higher chance that, that there's no, there's no income being earned from employment. So if you're retired, then spousal support will really be about, you know, um, figuring out what your investment income is and your Social Security and basing the support on, on those numbers. So there's typically less money for spousal support than there would be. However, people that have been married a long time say, the internet says I should be getting support life, even though they're retired. They should take care of me. But if there's not the income being earned, it's really dividing the assets equally and, and just basing support on the difference between his and her Social Security and investment income. If they're dividing assets equally, they should be both getting the same investment income. So support is a lot— people are The, the lower earning, traditionally lower earning person is often very surprised at what the support is compared to what it would have been 10 years earlier. And then it's a lot about dividing retirement assets. That's a huge part of a silver divorce because that's the majority of the assets. And those are really no different than a traditional situation.

One other question came in. I think we are running out of Yeah. Uh, one spouse can transfer money from their SEP IRA to other spouse's SEP IRA if agreed during a divorce. Is there any tax penalty for this?

No, you can divide an IRA to another person's IRA without— all you need is a court order. So you don't even need what's called a QDRO. A QDRO is how you divide a 401 To another, to your former spouse's IRA. That is a special document that allows that transfer to be tax-free and penalty-free. QDRO, Quadro, and you need a Quadro attorney to prepare that document. Um, uh, but an IRA transfer just requires a judgment. So you need a divorce judgment, you need a settlement agreement signed by each of you. Then submitted to the judge. The judge approves it. You have a judgment, and you take that judgment to Schwab or Vanguard or wherever and say, look, it says here that you're supposed to transfer it. And then they, they perform it for you, but you'll need the judgment. They won't do it without that.

I did one of those, not the Quadro, but the IRA to IRA. Both husband and wife, they had money in their own IRAs. So what we did is, instead of sitting down and calculating, we gave half of the wife to the husband and half of the husband to the wife. We created 2 new accounts. So everything will be very clear. No, you know.

Yeah. So, if it's a traditional IRA, there's tax liabilities built into that, and they could be different. You know, the, the accounts have— one account could have $400,000 in tax liabilities, the other could have $50,000, who knows. So like dividing them equally is the, is the fair way to do it. But great, I really appreciate it.

We are at the top of the hour. Well, thank you so much everyone for joining us. We will, if you have any question, Please feel free to email us. We will follow up with an email, uh, as far as the survey. And also, if you have any question with that email, you can— if you have any questions, uh, you're free. You're more than welcome and free to contact us. Have a wonderful evening and enjoy this beautiful early Thanksgiving week and the holiday season. Take care. Thank you, Scott. Bye-bye.