Estate Planning and the Automatic Temporary Restraining Orders: Dangers and Traps to Avoid
Did you just file for a divorce or legal separation or get served with papers? If so, it is important to know that you may be bound by what are known as the automatic temporary restraining orders (or otherwise known as ATROs) by virtue of the summons and that those ATROs have implications as it pertains to your estate plan (i.e. wills, trusts, etc.). The provisions of the ATROs, as referenced in this blog have to deal with crossover issues of estate planning (drafting wills, trusts, powers of attorneys or health care directives). California Family Code Section 2040(d)(1) deals with non-probate transfers, which is understood to be any instrument other than a will that transfers property on death, including “a revocable trust, pay on death account in a financial institution, Totten trust, transfer on death registration of personal property, or other instrument of a type described in Section 5000 of the Probate Code.”
California family law has held that if you had previously “granted” to your wife or partner your estate or part thereof (whether by will, trust, or if you had no such estate planning documents, then it would be by intestate succession), that your spouse or partner will inherit from your estate upon your death despite the fact that you may be in the midst of a divorce or a legal separation in Court.
Ways to avoid the estate planning traps during your dissolution proceedings include, but are not limited to the following:
- Severance of property held in joint tenancy (with the right of survivorship) with notice and filing of the intent to severe the joint tenancy (recording it as well in the County Recorder’s Office). By doing this, the property interests will be held as tenants in common, without the right of survivorship, and your 50% interest in the property will pass to your heirs. However, if the other party dies before the proceedings are concluded, you will not inherit the other party’s 50% interest in the property, it will pass to his or her heirs (so you have to ask yourself do you want to take the chance that if something should happen to you that the other party would potentially receive your 50% in the estate along with their 50% interest, or would you rather make sure that your 50% does not go to your spouse but instead to your heirs). This more commonly comes up when dealing with elderly clients or sick/ill clients.
- Utilizing the provisions of California Family Code Section 2040 by creating, modifying or revoking a will/trust but with notice to the other party and consent or a Court order authorizing you to do so depending on what the actual instrument or document requires (some trusts may require written consent of both parties, in which case unilateral action by one party may not be permitted and may result in sanctions, attorney’s fees, and costs, etc.). Additionally, nothing bars a party from creating a new trust, but simply NOT funding it during the proceedings, as that may violate the ATROs and may be seen as an impermissible transmutation or attempted transmutation of the property. A party may instead want to revoke his or her will and have a pour-over will, wherein his or her share of the assets fund the new trust only upon the party’s death (but again do NOT fund the new trust in the interim).
- Revoking or drafting new powers of attorney or health care directives. This is not seen as a non-probate transfer or violation of the ATROs.The full text of California Family Code 2040, appears below:
(a) In addition to the contents required by Section 412.20 of the Code of Civil Procedure, the summons shall contain a temporary restraining order:
(1) Restraining both parties from removing the minor child or children of the parties, if any, from the state, or from applying for a new or replacement passport for the minor child or children, without the prior written consent of the other party or an order of the court.
(2) Restraining both parties from transferring, encumbering, hypothecating, concealing, or in any way disposing of any property, real or personal, whether community, quasi-community, or separate, without the written consent of the other party or an order of the court, except in the usual course of business or for the necessities of life, and requiring each party to notify the other party of any proposed extraordinary expenditures at least five business days before incurring those expenditures and to account to the court for all extraordinary expenditures made after service of the summons on that party.
Notwithstanding the foregoing, nothing in the restraining order shall preclude a party from using community property, quasi-community property, or the party’s own separate property to pay reasonable attorney’s fees and costs in order to retain legal counsel in the proceeding. A party who uses community property or quasi-community property to pay his or her attorney’s retainer for fees and costs under this provision shall account to the community for the use of the property. A party who uses other property that is subsequently determined to be the separate property of the other party to pay his or her attorney’s retainer for fees and costs under this provision shall account to the other party for the use of the property.
(3) Restraining both parties from cashing, borrowing against, canceling, transferring, disposing of, or changing the beneficiaries of any insurance or other coverage, including life, health, automobile, and disability, held for the benefit of the parties and their child or children for whom support may be ordered.
(4) Restraining both parties from creating a nonprobate transfer or modifying a nonprobate transfer in a manner that affects the disposition of property subject to the transfer, without the written consent of the other party or an order of the court.
(b) Nothing in this section restrains any of the following:
(1) Creation, modification, or revocation of a will.
(2) Revocation of a nonprobate transfer, including a revocable trust, pursuant to the instrument, provided that notice of the change is filed and served on the other party before the change takes effect.
(3) Elimination of a right of survivorship to property, provided that notice of the change is filed and served on the other party before the change takes effect.
(4) Creation of an unfunded revocable or irrevocable trust.
(5) Execution and filing of a disclaimer pursuant to Part 8 (commencing with Section 260) of Division 2 of the Probate Code.
(c) In all actions filed on and after January 1, 1995, the summons shall contain the following notice:
“WARNING: California law provides that, for purposes of division of property upon dissolution of marriage or legal separation, property acquired by the parties during marriage in joint form is presumed to be community property. If either party to this action should die before the jointly held community property is divided, the language of how title is held in the deed (i.e., joint tenancy, tenants in common, or community property) will be controlling and not the community property presumption. You should consult your attorney if you want the community property presumption to be written into the recorded title to the property.”
(d) For the purposes of this section:
(1) “Nonprobate transfer” means an instrument, other than a will, that makes a transfer of property on death, including a revocable trust, pay on death account in a financial institution, Totten trust, transfer on death registration of personal property, or other instrument of a type described in Section 5000 of the Probate Code.
(2) “Nonprobate transfer” does not include a provision for the transfer of property on death in an insurance policy or other coverage held for the benefit of the parties and their child or children for whom support may be ordered, to the extent that the provision is subject to paragraph (3) of subdivision (a).
(e) The restraining order included in the summons shall include descriptions of the notices required by paragraphs (2) and (3) of subdivision (b).
Remember, every case is different and consult with an experienced attorney PRIOR to doing anything as it relates to the disposition of assets or your current estate plan. Court orders may be secured that provide exceptions to the ATROs, as each family and circumstance is unique.