California Family Code section 2040 requires the summons in a California divorce proceeding to contain certain mutual automatic restraining orders. The petitioner must serve the Summons on the respondent, thereby imposing the orders on the respondent. The orders become binding on the petitioner by means of a required statement in the Petition that the petitioner knows about the restraining orders and agrees to be bound by them: “I have read the restraining orders on the back of the summons, and I understand that they apply to me when this Petition is filed.” Lawyers refer to these automatic temporary restraining orders as ATROs.
Among various ATROs, section 2040 requires an order “[r]estraining 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”. (Fam. Code § 2040, subd. (a)(4))
With specific reference to wills and trusts, Family Code section 2040 provides that it “does not restrain 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 …. (4) Creation of an unfunded revocable or irrevocable trust.” (Fam. Code § 2040, subd. (b))
This statute controls what the parties may do regarding wills and trusts. Taken together the subdivisions of the statute mean that the parties to a California divorce may amend or revoke their wills and may create a new will. In addition, they may revoke revocable trusts, but they must give file notice to the other side in the divorce proceeding and serve that notice on the other side before the revocation takes effect. Finally, the parties may create unfunded trusts, which may be revocable or irrevocable.
Unfunded trusts are trusts into which the parties have not put any assets. In fact, transferring property into the trust to fund it is a violation of the ATRO that prohibits “transferring…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.” (Fam. Code § 2040, subd. (a)(2)(A))
Why, then, would someone go to the trouble and expense to create a trust and not put assets in it? For one thing, the trust could be a receptacle for assets subject to a pour-over provision in a will that would take effect if a party died during the divorce proceedings. An unfunded trust could also be funded with property that has been released by a court order, so a party might draft the trust and ask court permission to transfer property to the trust. (See 31 Cal.L.Rev.Comm. Reports 75 (2001)) Plus, a party could prepare an unfunded trust during the pendency of the divorce so that property could be transferred immediately into the trust upon entry of a court order, agreement of the parties, or entry of judgment. So, there are reasons for an unfunded trust.
Some of those reasons take advantage of the fact that the ATROS are, by their own terms, temporary. For example, the prohibition against transferring property is effective only if the transfer is “without the written consent of the other party or an order of the court.” (Fam. Code § 2040, subd. (a)(2)(A)) The prohibitions relating to nonprobate transfers also are only effective “without the written consent of the other party or an order of the court.” (Fam. Code § 2040, subd. (a)(4)) Thus, the ATROs are temporarily in effect until a party obtains a written agreement from the other party or a court order terminating or modifying the relevant ATRO.
In summary, without agreement of the other party and without a court order, a party to a California divorce may
- Create, modify, or revoke a will
- Revoke a nonprobate transfer, including a revocable trust, pursuant to the instrument, if notice of the change is filed and served on the other party before the change takes effect
- Create an unfunded revocable or irrevocable trust