Pre and Post Nuptial Agreements in Colorado
What is a Marital Agreement?
Pre- and postnuptial agreements (marital agreements) are important tools for couples to manage their assets and avoid conflict, both before and during their marriage and as part of the process of separating if the marriage ends. Prenuptial agreements are contracts executed prior to marriage and post-nuptial agreements are contracts made between the spouses during the marriage, that allow the parties to agree to and delineate the division of assets should a legal separation, divorce or death occur. These agreements are legally binding contracts which can protect both parties by creating a plan that if conscionable will be enforceable and predictable – thereby taking the potential conflict out of the difficult process of separating.
Every couple should consider a marital agreement as a potential tool to enable them to plan for the future, protect their assets and avoid conflict. Couples who do not have a marital agreement are subject to the provisions of the Colorado Uniform Dissolution of Marriage Act, which will determine their rights in the case of separation or divorce; and the Colorado Probate Code, which will determine the rights of the surviving spouse and other heirs, upon death if proper estate planning has not been completed.
How Colorado Law Works for Couples without a Marital Agreement
Individuals that are married and living in Colorado have statutory rights if the marriage terminates by divorce. Colorado law defines two types of property that can exist during the marriage. Separate property is the property owned prior to the marriage, and all property received by gift or inheritance during the marriage. Marital property includes all property earned by either spouse during the marriage, including deferred compensation; and all income and appreciation on separate property, whether realized or not – regardless of how the property is titled.
When a couple divorces in Colorado, each party keeps his or her separate property – if it was kept separate during the marriage and not co-mingled with marital property. If the parties cannot reach an agreement about the division of property during a divorce, the court is directed to divide the marital property in the proportion that it deems just after considering all relevant factors.
In addition to dividing marital property, a divorce court can award maintenance if it finds that one of the parties lacks sufficient income or property to provide for his or her reasonable needs. The amount and length of a maintenance order is determined by the court’s just determination after considering all relevant factors. Colorado courts have been unpredictable in awarding maintenance and thus it could have a significant financial impact on both parties.
Why Should Couples Consider Marital Agreements
Marital agreements can be used to define the parties’ rights in regards to the appreciation of separate property and all marital property accrued during the marriage. Couples who have children from previous marriages are able to provide for these children and protect their inheritance in the event of a divorce from a subsequent spouse. If one of the spouses owns a business, a marital agreement can ensure that the new spouse does not become entangled in the company should a separation occur.
Marital agreements identify, define, and resolve legitimate issues related to the couples’ finances, estate plans and business interests – while the parties are free of the emotional turmoil created during a separation process. Advantages of premarital agreements for both parties include:
Avoiding litigation costs
Protecting against fears of family members such as children from previous marriages
Protecting family assets
Protecting business assets
Protecting against creditors
Predetermined and thus predictable disposition of property
Contents of a Colorado Prenuptial Agreement
A marital agreement may address the following issues:
1. Spousal Maintenance: whether it is waived, set at a predetermined amount, based on years of marriage, etc.
2. Division of property and debts: whether assets acquired after the marriage are kept separate; whether future appreciation on existing assets are separate property; how to apportion pension funds, retirement benefits or other intangible assets.
3. Inheritance: a spouse may agree to waive his or ability to take an elective share of the estate thereby protecting children from a previous marriages’ legacy.
4. Rights and obligations under insurance policies, employee benefit plans, and other assets such as these.
5. Waiver of Rights Upon Death: a common provision in prenuptial or postnuptial agreements designed to prevent probate laws or prior wills from trumping the terms of the prenuptial or postnuptial agreement.
6. Alternative Dispute Resolution: a provision requiring the complaining party to mediate or arbitrate any dispute and preventing him or her from filing a costly lawsuit.
7. Attorney’s fees: who pays for attorney’s fees if the parties are unable to abide by the terms of the agreement.
If the parties have children during the marriage, a marital agreement cannot legally bind either party to agreements made regarding child support, physical custody, parenting time and decision-making authority. The parties may agree on proposed terms for these issues but these terms would be subject to the court’s later approval.
What does a Marital Agreement do?
A marital agreement allows the engaged or married couple to negotiate around Colorado law in order to define separate property and marital property. By means of a marital agreement you can define separate property to include all income from and appreciation on your separate property. You can also protect your earned income by defining that as separate property, so that assets purchased or investments made with your earned income will remain your separate property upon divorce. Thus, by altering the definitions of separate property and marital property from those provided by statute, you can protect not only the core of your separate property which you amassed prior to your marriage, but also the earnings from and appreciation on that property. If you wish to restrict your spouse’s rights upon divorce to your earned income, including retirement benefits, you can do that as well.
Spouses can waive their rights to maintenance payments in a marital agreement or they can agree to a certain amount of maintenance to be paid to the less wealthy spouse in the event of a divorce. However, if at the time of a divorce, the court determines that the spousal maintenance terms in the agreement are unconscionable, the court can render that portion of the prenuptial null and void.
Finally, a marital agreement can allow couples to determine what rights a surviving spouse will have upon the first spouse’s death. For example, in many marital agreements, each spouse waives his or her right to reject the terms of the others’ will and elect to take up to half of the estate outright (depending on the length of the marriage). Such a waiver ensures that the estate plan of the first spouse to die will be honored by the surviving spouse.
Why Couples Choose to Alter Spousal Rights Provided by Law.
Couples choose to alter their statutory rights for a number of reasons. Some people simply wish to have certainty as to property rights and maintenance payments upon a potential divorce. By entering into a marital agreement, they eliminate much of the financial uncertainty associated with a divorce. A fairly negotiated marital agreement can provide some assurance to the wealthier spouse as to the extent of the financial impact of a divorce and provide the less wealthy spouse with some guarantee to his or her entitlement to property distribution and maintenance.
People who have children from a previous marriage may wish to protect their assets for these children’s benefit. A marital agreement that addresses the rights of a surviving spouse can protect the deceased spouse’s estate for the benefit of children from a previous marriage as well.
Sometimes parents encourage their adult children to enter into a marital agreement in order to protect assets owned by the child that were accumulated by previous generations. Usually, a wealthy family wants to ensure that assets that have been gifted to adult children do not become vulnerable to the spouse in a divorce situation.
Enforceability of a Marital Agreement.
Colorado adopted the Colorado Marital Agreement Act in 1986. This statute allows the waiver of statutory property and maintenance rights of spouses either before or during a marriage. Thus, the general statutory rule is that marital agreements are valid and binding contracts. However, one party can have the agreement voided if he or she did not sign it voluntarily or if the other party did not provide a fair and reasonable disclosure of his or her property and financial obligations.
When one spouse challenges the validity of a prenuptial, the court will look at several factors to determine whether the agreement should be enforced. The two most important factors the court considers are the adequacy of the financial disclosure and whether either party was under duress when signing the agreement. Full and complete disclosure of all assets is required prior to the signing of the prenuptial agreement because a party cannot knowingly waive rights unless he or she has sufficient information about the potential value of those rights. Duress is reviewed as a question of fact and the court may consider factors such as the timing of the agreement (i.e., was the spouse forced to sign it right before the wedding, etc.) and whether each spouse had
independent counsel. It is extremely important that both parties have their own legal adviser during the preparation and execution of a marital agreement.
Estate Planning Must Dos Before Summer Vacation
Get your estate planning done so that you can enjoy your vacation knowing your life legal plan is in place!
Summer is fast approaching and most of us have already made plans for our vacations, whether it be a trip home to see family, a trip to an exotic country, or camping in our own home state.
Understandably, most of us put more time into planning our adventures then we do in our estate planning. Its a lot more fun! I can’t tell you how many times clients have reached out just before they take off for a big trip with what I now call the “estate planning itch." Their bags are almost packed, house sitter on board, etc., then the phone call:
“We are leaving next week and are wondering about an estate plan – can you help us quickly get this done.”
Estate planning is a daunting topic to think about. What if something were to happen and one of your family members were to get seriously injured on the trip? What if catastrophe struck? It’s natural to shelve these thoughts and also natural to have them “itch” a little bit. Why not be proactive and address this now. Estate planning itself, is actually not that daunting and can be an important tool in not only getting your affairs in order but also in understanding where you are right now in terms of your life planning. In just a few conversations I can help you sort out and complete your estate planning and almost always clients inform me that it was much easier than they had imagined with great relief.
Here are seven estate planning tasks that you might want to take care of before you go anywhere this summer. That way wherever you go you won’t have to worry about the inevitable estate planning itch.
1. Make a Will
Have you been putting off making a will? Perhaps you don’t think you need one-you do. Or perhaps you don’t think you have enough assets to require one-you still do. These are a few of the many common excuses that could cause turmoil and uncertainty for your family and loved ones were something unforeseen happen to you or a loved one.
Another misunderstanding is that a will is not necessary because the state makes a will for you. True, (these “wills” are actually called intestacy statutes), leaving your final wishes up to the state is fool hardy. The state decides based on order of relation and not on individual and personal circumstances.
I’m not even going to try to touch the tip of the iceberg with reasons for why you need a will. The point is, making a will before you go on your summer holiday will let you rest easier while you’re on vacation knowing your life plan is in place.
2. Check Beneficiary Designations
Almost always, a will is not enough to distribute your assets. Some of your largest assets, such as your IRAs, 401(k) plans or life insurance will be distributed outside of your estate to your named contractual beneficiaries.
Each major financial account lets you designate a beneficiary. Usually you’ll designate the beneficiary on the spot and in a rush while setting up your account. Sometimes your snap decision will be the right one but other times, you might be making your assets more available to certain people than you’d like. For example, do you want your 18-year-old child to have access to your entire retirement savings? Are you certain s/he will spend that large sum of money in the way you’d like him/her to?
It’s worth revisiting who your beneficiaries are in case something happens to you before you travel. This can be achieved via a simple phone call to your agent or representative.
3. If You Have Children, Please Name a Guardian or Guardians
Regardless of whether or not you make a will, you should always name a guardian (or guardians) for your children.
It’s devastating to think about something happening to you before your children grow up, but it’s important to name the friends or relatives who can take care of your children according to your values and beliefs. In Colorado, you can name a guardian to take care of the children and a guardian to take care of the finances if that is appropriate. If you do not name a guardian it will be up to the Court and relatives to decide who will care for your children.
You can also create a Pet Trust to care for any animals that you have, providing funds for their care.
4. Complete your Medical Power of Attorney/Living Will
Sometimes, catastrophe doesn’t mean death. Sometimes, a person is left incapacitated and unable to make decisions about his/her healthcare (being in a coma or otherwise unable to communicate). Who would make the decisions for you if you were incapacitated? If you don't name an agent your loved ones will have to resort to the Court in order to speak to medical personnel on your behalf.
Signing a medical power of attorney and living will also allows you to specify what type of medical treatment you want and don’t want if you are unable to communicate your wishes.
Why is this necessary? Because without this, your family will have to resort to the the court, who will then appoint a guardian to make those decisions for you. That’s costly both in terms of finances and emotional trauma to your loved ones; and you risk that your wishes won’t be adhered to.
5. Make a General Power of Attorney
Your health care power of attorney allows other people to help make medical decisions for you if you’re incapacitated, in conjunction with the wishes you can specify in a living will. A durable general power of attorney is equally important. This person makes decisions about what happens with your assets and other interests when you are unable to manage them yourself. Again, if you don't name an agent your loved one's will have to petition the court to appoint a conservator for you.
6. If your estate plan is complete
Review your fiduciary and beneficiary designations and update them if needed. Are your choices still appropriate? If not make the changes now.
7. If you have children over 18
Once your minor child turns 18, you need to be named as their agent in powers of attorney in order to speak to medical personnel and/or banking and financial institutions, etc. Whether your child is going off to college or you are just simply trying to schedule a vaccine for travel, it’s important to have these documents in place so that you can be there for them if needed.
Your Summer Vacation Awaits You….
Think about how good it would feel to have these legal documents completed. Although chances are good that nothing will happen to you or your loved ones, you don’t want to take the risk that your life plan will be decided by someone other than yourself.
Hoping that your family makes many happy memories this summer!
Medical Power of Attorney - Choosing Your Agent
In completing your POAs its important to choose an appropriate agent. Here are five criteria to think about in relation to choosing an agent for your medical power of attorney.
1. Personal belief: Since the concept of withholding artificial-life support runs contrary to the teachings of some religions and is a very personal decision, it is helpful to find a healthcare agent who understands your feelings in this regard and whose own beliefs are not contrary to your own.
2. Communication: It is important to choose someone you are comfortable speaking with about your health care wishes and it should be clear to you that not only do they understand them but they will be able to communicate these to your health care providers and family members if necessary.
3. Practical reality: Its critical that the person you choose is willing to accept responsibility and agree to act as your agent - "ready and able to serve".
4. Voice: In choosing an agent be sure that they will be able to speak up and stand firm on your behalf - even if faced with physicians who are advising otherwise or other close family members who disagree.
5. Availability: Make sure this person is likely to be accessible and capable of serving as your agent well into the future.
Revocable Living Trusts In Your Estate Plan
Estate Planning: The Use of a Last Will versus a Revocable Living Trust
Many clients come in asking about setting up a Trust rather then a Will for their estate planning. Trusts are very trendy right now, especially in states like California where the probate process is expensive and complicated.
Each of these estate-planning tools has pros and cons. The following information is meant to make sure you understand the differences and enable you to make an informed decision about which estate-planning method is right for you.
When a Last Will is used, it does not become an effective document until death. A Last Will requires the property of the decedent to go through the probate process prior to being distributed. Probate is the process by which a Last Will is presented to the court, the court authorizes the representative of the estate to take possession of the decedent’s assets, the creditors of the decedent are notified, and, approximately four months later, the representative pays the creditors and then distributes the assets to the intended beneficiaries.
When a Revocable Living Trust is used, the assets titled in the name of the trust are not part of the decedent’s estate, and do not need to go through the probate process. As soon as the individual who set up the trust dies, the alternate trustee named in the trust is entitled to take control of the assets without any court involvement. Importantly, this process also happens when the person who set up the trust becomes incapacitated.
Colorado has an informal probate process. The probate court is minimally involved with the process, and thus most probates here are both inexpensive and efficient. However, as noted above it does take about four months to complete the process. In a Revocable Living Trust based plan, the immediate ability of the alternate trustee to access the assets in the trust upon the incapacity or death of the settlor of the trust is definitely an advantage if time is a consideration.
If you choose to use a revocable-living trust based estate plan, your personal residence, vacation home, and investment accounts and other types of property are usually transferred into the name of the trust, requiring retitling of these assets, but tax advantaged retirement accounts are usually not. This process of retitling the assets is one of the two disadvantages of using a Revocable Living Trust when compared to a Last Will-based estate plan. The second disadvantage to the Revocable Living Trust is that it is typically more expensive than a Last Will based plan.
I generally recommend a Last Will based estate plan here in Colorado because of our informal probate process. I recommend a Revocable Living Trust based plan to my clients who meet any of the following criteria:
➢ complex asset management needs or diverse types of investment assets since Revocable Living Trusts provide a very strong asset management tool;
➢ property outside the state of Colorado (since such property can be placed in the Trust, no additional probate proceeding will need to be opened in the other states);
➢ the need for privacy (Wills are filed at death and become pseudo-public documents) or the wish that their at-death disposition not be public; and
➢ impending disability (at the disability of the individual, the alternate trustee will be able to take control of the assets in the trust).
Feel free to call or email me if you have further questions regarding the differences between these two types of plans.
On Gratitude
Luke at 9 weeks old in 2003.
I recently lost my 14-year-old, yellow lab, Master Luke. After many days of tears and grief, I woke up this morning feeling soothed by a deep sense of love and gratitude. My aching heart, my sadness, and my sense of loss are being gently transformed by my appreciation for the great gift I have received in having this incredible being of light and love in my life for so many years and through so much change.
Since gratitude is such an important and healing thread in all of our lives I thought to pay it forward a little by reminding us all of some simple ways that we can express our appreciation and gratitude to those who touch our lives. There are many ways to say thanks and it is always nice to reach out to those who have touched us or made a difference.
Some simple ways to express gratitude include:
- Bake some cookies or other special treat or buy some from a bakery and deliver them or have them delivered.
- Send a handwritten card or thank you note via snail mail.
- Brighten someone’s day by sending or delivering flowers or a nice plant.
- Give a small but useful gift or gift card to someone as an expression of appreciation.
- Make a donation to a charity in someone's name who has touched our life as a way of saying thanks.
- Chocolate, specialty coffee, a nice tea, healthy treats that can be enjoyed are always appreciated!
- Give them a shout out on social media and let others chime in as to how special they are as well.
These might seem a bit old fashioned, but when was the last time you got a card in the mail or flowers delivered as an expression of appreciation? Life is precious and our connections to each other are a big part of that so why not reach out to say thanks now and then without using the strokes on the keyboard. If you have a special way of expressing gratitude please share here by posting a comment.
Estate Planning For Single People
Single people without children often avoid estate planning and the challenges associated with it, because of feeling overwhelmed or unsure. This is unfortunate because its even more critical for single people to plan ahead and name their fiduciaries and beneficiaries as there is no clear cut answer for their loved ones should something happen.
The following questions should be addressed:
To whom should I leave my assets?
Do I need to consider creating a trust to manage my assets now or for my chosen beneficiaries in the future?
Who should be my personal representatives and/or trustees?
Who should be my agents for my medical and financial powers of attorney?
If you are a single person without young children, you can leave your assets to whomever you choose, including but not limited to your partners, relatives, friends or charitable organizations. In Colorado, you can also create Pet Trusts and name trustees to care for your animals. If you do not have an estate plan in place, the state will dictate who will inherit your assets. A recent case in point, the author of the Girl With the Dragon Tattoo series, Stieg Larrsen did not have an estate plan and as a result, his estranged father and brother, whom he had not spoken to for over 20 years before his death inherited his entire estate and all royalties thereof while his long-time love and assistant, whom he had lived with for 20 years was cut off, receiving nothing.
Selection of the right personal representatives and trustees is also essential to successful estate and trust administration. Who do you trust to administer your estate, especially if your relatives live far away or are unfamiliar with your affairs? In addition, health care and financial powers of attorney are very important documents to have in place since you may need these agents to make crucial medical decisions on your behalf as well as control your financial matters if you are ever unable to do so on your own because of disability.
Estate planning for a single person often demands more attention to detail than estate planning for married persons or single persons with children or grandchildren - because there is no obvious answer. A Will is usually sufficient for unmarried persons with smaller estates, but a Living Trust may be a better option for persons with larger estates (click here to read about Living Trusts). Your estate planning documents should be reviewed regularly, particularly when there have been changes in the law or in your personal situation. As a single person, it is very important that you understand how your assets are currently held and how they will pass after your death.
Bonus children (also known as stepchildren) and estate planning
I have a dear friend who refers to her stepchildren as her bonus children and I think it is a beautiful way to describe a family with children from a former relationship and so I have adopted this term here. Many clients form new relationships with bonus children-- that is, a family where one or both spouses have children from a previous relationship. Estate planning for these families can present unique challenges. It’s challenging to combine the interests of a current spouse and any mutual children with the desire to provide for one's children of a previous relationship.
Hopefully, the children of the prior relationship are an integral and loving part of the new family relationship, looked upon and treated by both spouses as if mutual children. However, there may be estate-planning issues about the bonus children and the new spouse, which could raise a number of concerns. For example, usually spouses leave their assets to each other first and then the children after both spouses are deceased. If all assets are left to the new spouse, the prior children may not be provided for, as the deceased spouse would have wished, since there is no legal obligation to support stepchildren. In addition, the surviving spouse may, at his or her death, leave all the assets to a new partner or his or her own children, to the exclusion of the children of the first spouse to die. On the other hand, if assets are left for the prior children at the death of their parent, there may not be sufficient assets remaining to provide for the current spouse or family.
Even with a harmonious family with bonus children, lack of planning may lead to unforeseen difficulties. In cases where death occurs without a will or trust, statutory intestacy rules may remove from the current marriage up to one half of the deceased spouse's estate and give it to the children from the previous marriage, even if the prior children are all grown and in less need of the assets than the spouse and minor children of the current marriage. If the prior children are minors, an ex-spouse may gain control of the assets. Finally, there just may not be enough assets available to adequately provide for the needs of all the members of the family.
Estate planning is an excellent way to create clarity in the family of bonus-children partners – with the couple agreeing to and spelling out what goes to whom - when. At a minimum, each spouse should have a Will. Otherwise, assets may eventually (upon the death of the second spouse) be distributed in a manner contrary to what the parties intended (the old third-party interloper scenario comes to mind).
A more proactive approach is to use a trust to provide for the surviving spouse, and still protect a portion of the assets for the children of a prior marriage. This type of trust is known as a Qualified Terminable Interest Property (QTIP) trust. Property passing to a QTIP trust is eligible for the marital deduction, so the property is not taxed at the death of the deceased spouse, leaving the entire amount available for the surviving spouse’s support. Such a trust can generate income for the benefit of the surviving spouse during his or her lifetime. At the death of the surviving spouse, those assets could then be distributed among the mutual and/or prior children pursuant to the wishes of the previously deceased spouse.
If the children from the previous marriage are young, after the death of the surviving spouse, the assets from the QTIP Trust can be held in a further trust for the children, under the control of an independent trustee, to ensure that the assets do not fall under the control of an ex-spouse.
It is not uncommon for a client with a much younger spouse to create benefits for the children from the prior marriage by purchasing life insurance. In such a case, rather than requiring the children to wait many years until the death of their step-parent to receive benefits, the client purchases a life insurance policy that is made payable to the children so they receive those cash benefits immediately upon the client’s death. Having the policy owned by the children (or perhaps even better, by an Insurance Trust for their benefit) and funding the purchase over time by making gifts to the children or the Trust can even provide those benefits without any transfer tax!
Other techniques are also available to balance benefits passing to a new spouse with benefits for the children of a previous relationship. Marital agreements are important planning tools, and contractual agreements to name beneficiaries or make a will are also used to ensure long term planning for bonus children when as we all know we can’t predict our futures. With careful consideration, estate planning for the blended family can provide orderly, equitable and compassionate distribution of estate assets, while also minimizing or eliminating confusion or even animosity between the bonus family, both here and now; and upon the death of a spouse in relation to the surviving beneficiaries.
If you have questions about these estate planning tools give me a call or shoot me an email or if you have a friend with bonus children please share!