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Family Law |
California's New Domestic Partnership Law: Is Registration Under AB 205 Right for Your Clients?
Fred Hertz, Attorney, Oakland, specializing in the formation and dissolution of non-marital partnerships. He is one of the panelists at CEB’s program on AB 205. More information on Frederick Hertz's law practice can be found at his website.
Website: www.samesexlaw.com.
E-mail: Fred@frederickhertz.com
AB 205 Transforms California's Domestic Partnership Registration
Effective January 2005, all of California's family law rules will apply to state-registered couples. This dramatic change in law is probably the biggest legal change world-wide to affect same-sex couples, given the very large number of gay and lesbian couples in California who have already registered as domestic partners. And, because opposite-sex couples over the age of 62 (and who qualify for certain Social Security benefits) can also register, the pool of affected clients is even larger.
As family law attorneys will readily recognize, this change in law means that all income and all assets and savings acquired after registration (or after January 1, 2005, depending on whether the law is considered to be retroactive), and all assets accumulated from earned income are presumed to be equally owned (community property), regardless of titling of deed, asset, or account. In general, there is a requirement of a written agreement to transmute property from community to separate or from separate property to community property, subject to specific family law provisions for reimbursement of certain contributions based upon a tracing argument. See Fam C §852.
The rules of community property also will apply to savings accounts, stock options and accounts, real property acquired, businesses developed, and IRA/pension benefits accrued -- though it is unclear how all of these rules will be applied to domestic partners. In addition, pre-registration assets, or gifts or inheritances received at any time, are presumed to be separately owned -- with the well-established complex statutory rules for allocating mixed assets/debts applying as well.
Moreover, as with any "married’ couple, the lesser-earning partner is eligible for post-separation spousal support as determined by family law court judge, based on statutory factors; spousal support is generally for a period no longer than half the "marriage." So too, the fiduciary duty of married couples will be imposed on partners, with potential liability for mismanagement or wrongful transfer of community property assets.
Most significantly, in the future dissolutions of domestic partnerships will require judicial process, the same as for marital dissolutions, except for couples registered for less than five years with no disputes, few assets, and no real property and no children, who can use the "extra" summary dissolution process of Secretary of State termination. See Fam C §299.
And, just as with married couples today, couples with pre-registration assets/debts may, in some situations, have those disputes resolved by the Family Court; in other situations, a separate lawsuit over pre-registration claims may be possible, and in some situations, the two lawsuits can be combined in one action -- but only if both parties waive their right to a jury trial for the adjudication of pre-registration assets.
Critical Uncertainties Regarding AB 205 and Domestic Partnership Registration
While the basic rules of AB 205 are simple to summarize, there are several particular uncertainties in the new legislation that will make it difficult in giving advice to most clients. The key uncertainties are as follows:
• Couples have been allowed to register since 2000. Thus, for couples that registered before January 2005, is the "date of marriage" the date of initial registration or is it January 1, 2005? The current legislation is silent on this issue; there is a proposed amendment to AB 205 that, if enacted, will impose all duties/benefits retroactive to the couple's registration date rather than January 2005. There is some question as to whether this retroactivity provision would be constitutional, but since there is an opt-out period (until December 31, 2004) that allows either partner to terminate the registration before these new provisions go into effect, it is difficult to analogize this provision to the retroactive provisions in family law that have generally been ruled invalid.
• It is anticipated that none of the state or federal tax benefits and burdens that apply to married couples will apply to domestic partners, which makes it very hard to analyze property and asset issues and to anticipate dissolution allocation issues. It is less certain, however, whether a partner's assets will be used to disqualify his or her partner from obtaining means-tested benefits.
• It is uncertain whether couples that registered with their partner out-of-state (e.g., Vermont civil union) will be covered automatically by AB 205 if they reside in California, but the answer is probably yes.
• It is uncertain whether partners who were registered with someone else out-of-state (e.g., Vermont civil union) will need to terminate that registration before registering as domestic partners in California, but the answer is probably yes -- and they should be able to do so in California courts under the provisions of AB 205.
• It is uncertain whether California courts will recognize a Massachusetts or a Canadian marriage.
• It is uncertain whether oral and/or written agreements entered into by couples prior to their registration will be valid with regard to post-registration assets, unless they are expressly modified to meet the standards of post-marital agreements.
Four Options for California Couples
Given all these complexities and uncertainties, it is difficult to advise clients as to the benefits and burdens of registration. In order to help simplify a client's decision-making process, it will be easier to divide the options into four basic categories:
• Remain unregistered (or terminate existing registration prior to January 1, 2005) and organize all property and debt allocations by title, account name, and so forth, without executing any formal asset or property agreement.
• Remain unregistered (or terminate existing registration prior to January 1, 2005) but execute property co-ownership and/or cohabitation agreement to address allocation of property, assets, debts, and post-separation support.
• Register (or remain registered after January 1, 2005) and agree to be bound by all community property rules (note: some couples may still need written agreement to address their pre-registration assets and debts).
• Register (or remain registered after January 1, 2005) and execute property co-ownership and cohabitation agreement to modify the community property rules regarding assets, debts, and post-separation support (support waivers subject to court review).
Making the Registration Decision
In order to assist clients in making the registration decision, I recommend that attorneys take clients through a "decision-tree" analysis, along the following lines:
FIRST, decide whether registration is vital for your relationship (e.g.,
to obtain insurance or other private benefits, to be eligible for adoption
procedures, to minimize property tax or transfer tax implications)
•Then, if registration is clearly vital for you, evaluate what private
written agreements are desired to modify the community property rules
regarding property or debt or inheritance issues, or spousal support obligations,
and if such modifications are desired, draft and execute the required
agreements
• For those facing adoption issues and for emotional reasons: make
sure you have your limiting agreements in place BEFORE you register, not
afterwards (if you have not already registered)!
SECOND, decide whether registration is clearly harmful to your situation
(e.g., disqualification from benefits, exposure to partner's debt, privacy
issues)
• If registration is clearly harmful for the two of you, evaluate
what private written agreements are needed to provide for property or
debt or inheritance rights and benefits; if such agreements are necessary,
draft and execute the agreements
• Reasons to not register: Immigration concerns, tax issues, eligibility
for public benefits, exposure to debt liability, high-risk business/professions,
and remember to keep assets separate until your written agreements are
signed
THIRD, if registration is neither vital nor harmful, decide whether you
prefer registration (with or without private agreements limiting the community
rules) or non-registration (with private agreements providing for property
and debt protections?
• Factors to consider: consistency with your basic arrangements (are
you a shared-asset couple or a separate property couple? If basically
shared, registration probably is best; if basically separate assets, not
registering is probably best). Consider the tax implications, symbolic
value, simplicity of rules, and the making of a political statement, and
the other benefits of registering (e.g., wrongful death claims)
• BIG RISKS: tax uncertainties, post-separation spousal support claims
Once the decision has been made, either register (or keep your registration
active if you have already registered) or if you decide not to be registered,
terminate an existing registration prior to January 1, 2005 (only one
signature required), and then draft and execute the appropriate agreements:
• Property co-ownership agreements: ownership and management of property
• Cohabitation agreements/pre-registration agreements: sharing of
financial assets and provision for or waiver of post-separation support
Mindset: intend to stay together, but clarify your decisions and agreements
to help you each make appropriate decisions regarding savings, career
goals/plans, sharing of assets and debts, property purchases/residential
decisions. Act consistently to make sure the "paper" reality
is consistent with the heartfelt reality!
FOURTH, remember: registering as a California Domestic Partner does not
relieve couples of the duty to take care of estate planning and tax planning
issues.
Advising Clients in a Time of Uncertainty
One of the greatest difficulties of AB 205 is the professional challenge
posed to attorneys who typically prefer to give advice in a context of
legal certainties. Unfortunately, most of the critical questions about
AB 205 -- the retroactivity issue and the federal tax issues in particular
-- are unresolved at this time. Thus, it will be impossible for attorneys
to provide any certainty to clients in making the registration decision.
It is impossible, however, to explain many of the known impacts of AB
205, and it is possible to assist clients in sorting out the key issues
to enable them to decide whether or not they wish to register. And, it
is certainly possible to assist clients in drafting and executing agreements
that cover the principal asset and property issues they are likely to
face in the event of a dissolution or death of either partner.
Fred Hertz, Attorney, Oakland
Practice
Under the New Domestic Partner Act
Co-Sponsored
by the California State Bar Family Law Section
Product Number: FA09170
Drafting
Domestic Partner Agreements Workshop
Co-Sponsored by the
California State Bar Family Law Section
Product Number: FA09171