The probate process in Hawaii can be onerous, time-consuming and costly. However, if the decedent's estate meets certain conditions, initiating a probate with the courts is sometimes not necessary. Hawaii law, namely Haw. Rev. Stat Section 560:3-1201, allows a decedent's next-of-kin to collect the decedent's property by affidavit. The following are the conditions that must be met for a decedent's property to be marshaled by a Collection by Affidavit:
Furthermore, Haw. Rev. Stat. Section 531-20 mandates that "every banking house, fiduciary company, agent, or trustee" must disclose the nature and kind of property being held when presented with the Collection by Affidavit.
A drawback to the Collection by Affidavit method is that any next-of-kin could potentially sign an affidavit and collect the assets unbeknownst to the decedent's other relatives. Obviously, this could lead to discord and friction between the decedent's relatives. If the decedent desired the property to be given to a certain person(s), then leaving the assets to be collected by affidavit is not recommended. The Collection by Affidavit method is simple, but can also be easily abused.
Banks and other financial institutions usually have their own Collection by Affidavit forms or an attorney can draft an affidavit that could encompass the assets generally. Either way, the Collection by Affidavit can be a cost-effective method to marshal a decedent's assets and a simple alternative to having to file for probate.
Selecting a Trustee is not a decision that should be taken lightly. However, many people merely select a family friend or their eldest child without a second thought as to whether they are truly qualified and willing to handle the duties. In the context of Revocable Living Trusts, since the Grantor is usually the initial Trustee, the decisions that need to be made are usually in regards to who shall be the Successor Trustee(s). Here are a few factors should be considered when selecting a Trustee or Successor Trustee:
What qualities does the Trustee possess? For people with adult children, selecting the eldest child to act as Trustee is the default. It makes sense to them for the mere fact that the child is the oldest and that the child likely helped care for their younger siblings growing up. However, having seniority is not a prerequisite to being a competent Trustee. For example, the youngest child may be better suited to be the Trustee because of his temperament or perhaps he has an investment or financial background. Instead of merely looking at age of the potential Trustee, think about whether she has the qualities and skills that would allow her to succeed as Trustee. Some of these qualities include being detail-oriented, trustworthy, fair-minded, responsible and having good communication skills,
Will the Trustee have time? An overlooked factor that thwarts Trustees and sometimes gets them into trouble is not having enough free time to administer the Trust. Examine the life situations your potential Trustees are currently in. Is your selection juggling a demanding job and a busy family life? People often equate being Trustee to having a second job. It's not far from the truth. Of course, circumstances change, but it would be wise to consider the Trustee in their current situation and not extrapolate what their lives may be in the future. You can always amend your selections at a later date if a person is no longer suitable to act as Trustee.
Where is the Trustee located? With technological advancements, having a Trustee who is in close proximity to trust assets is not as big of an administrative hurdle as it was in the past, but it certainly makes the Trust easier to administer if your Trustee is nearby. And given our state's isolation, this is especially true for a Trust whose situs is in Hawaii. Consideration should be given to the cost an out-of-state Trustee will incur when employing agents to carry out the administration. This cost will likely be paid for out of trust assets, which will leave less for the beneficiaries. If some of your prospective trustees live on the mainland while others reside in Hawaii, thought should be given to how willing a mainland Trustee may be to administer a Trust located in Hawaii.
How complex and large are the assets in the Trust? If your Trust contains significant assets or is perhaps a legacy Trust that is designed to last multiple generations, you may want to forgo selecting an individual Trustee and opt for a corporate Trustee. While a corporate Trustee's fees will likely exceed those of what an individual may request, a corporate Trustee does have the institutional support and expertise to manage more complex Trusts. However, for Trusts that have assets of less than $100,000, employing a corporate Trustee may not be worthwhile monetarily since a corporate Trustee sometimes charge a minimum fee, which could be a sizable percentage of the trust assets.
How are the relationships between the beneficiaries? If you are aware of conflicts between your beneficiaries, naming one of them as Trustee may not be the wisest move. Other beneficiaries may resent the beneficiary you chose to act as Trustee and those feelings may balloon into costly legal battles. Sometimes beneficiaries will engage in petty bickering, but these distractions will be enough to make cause unnecessary stress for the Trustee, which may lead to additional problems. Therefore, if tension exists between your beneficiaries, whether it is underlying or overt, selecting an impartial, corporate trustee may help reduce the potential for litigation among the beneficiaries. If you're thinking about using a family friend as Trustee, consider the unenviable position he may be placed in when having to act as a mediator or referee to your beneficiaries.
Just ask. Finally, ask your prospective Trustees if they want the responsibility of being Trustee. Explain that administering the Trust and communicating with the beneficiaries will take time away from their own lives and pursuits. Ask if they'd be willing to make that temporary sacrifice for you. Making upfront disclosures to Trustees of their responsibilities will help mentally prepare them for the eventuality of being a Trustee.
It is commonly known that minors cannot own property or validly execute contracts. So what happens if a grandparent wants to gift a significant sum of money to a grandchild? Or perhaps a parent wants her child, who is a minor, to benefit from the proceeds of a life insurance policy on the parent's life? One possibility is to place the property into a Trust, which would allow a trustee to manage and hold the property for the benefit of the minor. However, what if creating a Trust was not an option? This is where the Hawaii Uniform Transfers to Minors Act comes into play. The Hawaii Uniform Transfers to Minors Act was enacted in 1985 and is codified in Hawaii Revised Statutes Chapter 553A.
Naming a custodian. The basic objective of the Hawaii Uniform Transfers to Minors Act is to allow a custodian to control and manage property on the minor's behalf until the minor reaches a certain age. At that point, the minor may legally take control of the property.
Scope of the Uniform Transfer to Minors Act. According to Hawaii Revised Statutes Section 553A-2, if the transferor, minor or custodian is a resident of Hawaii or if the custodial property is located in Hawaii, then the Hawaii Uniform Transfers to Minors Act will govern. Consequently, the custodian is subject to the jurisdiction of Hawaii courts regarding any custodianship matters.
Naming or nominating a custodian. A person may be nominated to act as a custodian via a Will, Trust, deed or an instrument exercising a power of appointment. Multiple successor or substitute custodians should be nominated in the event the initial nominated custodian cannot act. The appointment or nomination of the custodian should be in the following form:
"[name of the proposed custodian] as custodian for
[name of minor] under the Hawaii Uniform Transfers to Minors Act."
Using the Hawaii Uniform Transfer of Minors Act. So when should a person name a custodian for a minor? The answer is anytime there is a possibility a minor may have the opportunity to own or receive property in their individual name. For instance, a minor should never be individually named as a beneficiary of a life insurance policy since the insurance company cannot legally release any proceeds to the minor.
Ramifications of not naming a custodian. If a minor is somehow entitled to property and a custodian has not been named or nominated, then an attorney will have to petition the court to have a conservator appointed to take control of the property for the minor. A conservatorship will provide court oversight for the property, but obtaining a conservatorship will require additional expense and hinder the ability of an adult to take immediate control of the property.
Termination of custodianship. A custodianship will terminate at different times depending on how the property was transferred to the custodian. If a Will or Trust authorizes a custodian to take control of property for the benefit of a minor, then the custodian must hand over the property once the minor reaches 21 years of age. However, if a Will or Trust merely names the individual minor as a beneficiary and does not authorize a custodian to take control of the property for the minor, then the personal representative or trustee may transfer the property to a custodian, but the custodian must transfer the property the minor once the minor reaches 18 years of age.
Accounting. According to Hawaii Revised Statutes Section 553A-19, a minor who is at least 14 years old, the minor's guardian or legal representative, an adult member of the minor's family or a transferor may petition the court for an accounting by the custodian or the custodian's legal representative. A successor custodian may also petition the court for an accounting by prior custodian.
Lack of control. One of the drawbacks of using the Hawaii Uniform Transfer to Minors Act is that the custodian is mandated under Hawaii Revised Statutes Section 553A-20 to release the property to the minor when the minor attains a certain age. At 18 or 21, the minor may lack the maturity or financial skills to properly manage property. Therefore, if a transferror is concerned about a minor possibly handling property at those ages and wish to delay the transfer to a later time, using a Trust should be a primary option. Through a Trust, the transferror would be able to dictate when and how much the minor will take of the property.
Cost efficient. An advantage of naming a custodian is that it costs very little to nominate or name a person to act as custodian. While creating a Trust is the preferable way of transferring property to minor, if a person does not have the financial means to hire an attorney to create a Trust, naming a custodian under the Hawaii Transfers to Minors Act is the transferror's next best option.
How to Revoke a Will in Hawaii
Sometimes a situation arises where a person passes away with multiple Wills and it may be unclear which Will is valid. If there is uncertainty regarding which Will controls and the disposition of the estate varies significantly from one Will to another, the potential for a Will dispute or challenge increases dramatically. Therefore, it is useful to know how to effectively revoke a Will to ensure that there is no confusion about which Will controls upon your death.
In Hawaii, Hawaii Revised Statutes Section 560:2-507 details how a Will may be revoked, whether in whole or in part. The methods a person may use to revoke a Will are as follows:
Method #1: Execute a subsequent Will. Having the most recently executed Will state unequivocally that all prior Wills are revoked is probably the cleanest way of revoking a Will aside from shredding the original and copies of any prior Wills.
Method #2: Performing a physical, revocatory act. Hawaii Revised Statutes Section 560:2-507(a)(2) states that a person may perform an act with the intent and purpose of revoking the Will to effectuate the revocation. This "revocatory act" may include doing the following to the Will:
Method #3: Implied Revocation. If a subsequent Will fails to expressly revoke prior Wills, Hawaii Revised Statutes Section 560:2-507(b) states that the previous Will may still be revoked by way of inconsistency IF the person intended the subsequent Will to replace rather than supplement the prior Will.
According to Hawaii Revised Statutes Section 560:2-507(c), there is a presumption that a subsequent Will replaces a prior Will in its entirety if the latest Will makes a complete disposition of the estate. This presumption may be overcome by "clear and convincing evidence".
HOWEVER, if the subsequent Will did NOT dispose of the entire estate, then the presumption is reversed (Hawaii Revised Statutes Section 560:2-507(d)). As before, the presumption came be overcome by "clear and convincing" evidence. Courts are generally reluctant to consider a subsequent Will as a complete replacement of a prior Will if the subsequent Will does not dispose of the entire estate. In that instance, the court would likely treat the subsequent Will as a "codicil", which is a supplement to a prior Will. The subsequent Will would only replace the prior Will where there are inconsistencies and both Wills would be effective to the extent they are in agreement.
Most everyone knows that a Will is a legal document that gives instructions on what happens to your property after you pass away. However, what makes a Will a Will? Fundamentally, it boils down to the testator's intent, but proving intent is sometimes a tricky (and expensive) proposition. Fortunately, Hawaii law provides guidance in the form of elements that should be met if a document or writing is to be considered a Will. If these elements are fulfilled, the court should have an easier time determining the testator's intent and concluding that the document was the testator's Last Will and Testament. Of course, there are exceptions to these requirements, but generally speaking there are four basic elements that should be met:
Requirement #1: A person must be eighteen years or older and be of sound mind. There is no exception to this requirement. (Hawaii Revised Statutes Section 560:2-501)
Requirement #2: The Will must be in writing. (Hawaii Revised Statutes Section 560:2-502(a)(1))
Requirement #3: The Will must be signed by the testator OR by someone else in the testator's conscious presence and as directed by the testator. (Hawaii Revised Statutes Section 560:2-502(a)(2))
Requirement #4: The Will must be signed by at least two other individuals who witnessed the testator sign the Will OR the individuals must have witnessed the testator's acknowledgement of the signature or the acknowledgement of the Will. (Hawaii Revised Statutes Section 560:2-502(a)(3))
What if the testator failed to have two people witness the signing of the Will? Perhaps the testator only had one person serve as a witness. Well, Hawaii Revised Statutes Section 560:2-502(b) states that a Will is still valid as a "holographic will" if the signature and material portions of the Will are in the testator's handwriting. This is true even if no one witnesses the testator writing, signing or acknowledging the Will. For the portions of the Will that are not in the testator's handwriting, extrinsic evidence can be used to establish that it was intended to be part of the Will.
What if one or more of the requirements spelled out under Hawaii Revised Statutes Section 560:2-502(a) aren't met? Say a person just left a piece of paper stating "I leave all my property to Joe the Plumber." In that instance, Hawaii law provides a "catch-all" exception in the form of Hawaii Revised Statutes Section 560:2-503. Hawaii Revised Statutes Section 560:2-503 basically says that a document or writing will be treated as a Will if it can be proven, through clear and convincing evidence, that the decedent intended the document or writing to be a Will. This opens the door for people to bring whatever evidence they have and attempt to convince the court that a document or writing was intended to be a Will. While it may be comforting to know that this "catch-all" exception exists, you don't want to put your intended beneficiaries in that position or situation because such an endeavor would surely be an uphill battle and require additional time and attorneys' fees.
The stress and expense of having to prove that a document or writing is a person's Will can usually be avoided by completing what is a called a "self-proved will". In Hawaii, a "self-proved will" can reduce the time spent in probate by helping the court more easily conclude that the document presented is indeed the decedent's Will. The requirements for a "self-proved will" is outlined in Hawaii Revised Statutes Section 560:2-504(a). For a "self-proved will", all the requirements of Hawaii Revised Statutes Section 560:2-502(a) that were mentioned above should be met including these additional elements:
Requirement #5: The Will must be simultaneously executed, attested to and acknowledged by the testator in front of an officer authorized to administer oaths (such as a notary public).
Requirement #6: The witnesses must attest and acknowledge in the presence and hearing of the testator and before an officer authorized to administer oaths that they witnessed the testator (or someone directed by the testator) sign the Will.
Also, according to Hawaii Revised Statutes Section 560:2-504(b), an attested Will (which is a Will that has been properly witnessed) can be made a "self-proved will" after its execution by having the testator and witnesses sign affidavits in front of an officer authorized to administer oaths and attaching them to the Will.
As you can see, while it can be argued that a document or writing which falls short of the Hawaii statutory requirements for a Will is in fact a person's Will, there are simple steps that can be taken to help the court establish the validity of a Will and to avoid long, protracted delays in probating a Will.
So the fiscal cliff disaster has been averted and all is well...until the potential calamity brought about by the sequestration scheduled in March. But until we reach the next cliff, let's review several of the important estate planning developments brought to us by the American Taxpayer Relief Act of 2012.
Estate tax exemption. From 2001 to 2012, the estate tax exemption steadily increased from $675,000 to $5.12 million (with the aberration of no estate tax in 2010). However, without a last minute deal, the estate tax exemption would have reverted to the Clinton-era exemption amount of $1 million. Not even the Democrats, who were proposing a $3.5 million exemption, would have wanted that. Chalk up a minor victory for the Republicans who got the estate tax exemption to remain at $5 million. After adjusting for inflation, the amount increases to $5.25 million for 2013. This amount is "permanent", meaning there is no sunset date and the exemption is good for the foreseeable future...until Congress changes it again.
Estate tax rate. No fiscal deal would've resulted in the top estate tax rate going from 35% to 55%. Congress met in the middle and agreed to a 40% top tax rate for amounts in excess of the estate tax exemption.
Portability. Under the Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010, portability was created to give the surviving spouse the ability to use the deceased spouse's unused estate tax exclusion amount. For example, if a husband dies and uses only $1 million of his $5 million exemption, the surviving spouse can elect to take the deceased spouse's remaining $4 million unused exemption and tack it on to her own $5 million exemption for a $9 million estate tax exemption. The fiscal cliff deal makes portability "permanent". In order to make this portability election, the personal representative of the deceased spouse's estate must file an estate tax return, even if no estate tax is due.
Investment income tax. For individuals earning $200,000 or more or couples making $250,000 or more, an additional 3.8% tax on net investment income will be levied. Net investment income includes a) interest, dividends, annuities, royalties and rents, b) gains attributable to the disposition of property and c) income and gains from a trade or business, but only if such trade or business is a passive activity with respect to the taxpayer or involves trading in financial instruments or commodities.
Individuals have to pay the tax on the lesser of the net investment income or the excess of their modified adjusted gross income. For estates and trusts, the tax applies to the lesser of undistributed net investment income or the the excess of adjusted gross income over the highest income tax bracket for estates and trust, which is $11,950 in 2013.
We've previously discussed the concepts of Marital Separate Property and Marital Partnership Property. In this post, we'll review the basics of a prenuptial or premarital agreement and how it affects estate planning. For the purposes of this post, "prenupital" and "premarital" are used interchangeably.
In Hawaii, premarital agreements are governed by the Hawaii Uniform Premarital Agreement Act, which was enacted in 1987 and codified under Hawaii Revised Statutes Chapter 572D. The following are some important points to keep in mind for prenuptial agreements:
Effect upon property. A prenuptial agreement can define the rights and obligations of the parties with respect to property whenever and wherever located and acquired. This usually means that the parties will designate their individual property as separate property and any joint property as martial property so that "Marital Separate Property" and "Marital Partnership Property" is clearly defined. As discussed in an earlier post, this can drastically alter property distribution in the event of a divorce, depending on the parties' financial positions prior to and after the divorce.
Effect upon spousal support. A premarital agreement can modify or eliminate payment of spousal support and alimony upon divorce.
Effect upon death. In Hawaii, a surviving spouse has a statutory right to claim an "elective share" of her deceased spouse's estate, which is basically a right to a percentage of the deceased spouse's estate. The "elective share" is meant to prevent a spouse from disowning the other spouse and leaving her destitute if there is an imbalance of wealth between them. A premarital agreement can eliminate a spouse's right to an "elective share". This means that the surviving spouse has no right to the deceased spouse's estate, except for what is provided in the deceased spouse's will or trust or transferred via intestate succession. Spouses will often provide for each other in their testamentary instruments, but a premarital agreement gives them the latitude to dispose of their assets without being constrained by the statutory obligations imposed by the Hawaii probate code.
The rules for taking a Required Minimum Distribution ("RMD") from a traditional Individual Retirement Account ("IRA") are vast and complicated, but in this post, we'll review the basics. As a side note, Roth IRAs are not subject to lifetime RMDs.
What is a RMD? A RMD is the minimum amount of money that needs to be withdrawn from an IRA account when a person turns 70 1/2 years old. This is true even if the account holder is still working. For the first RMD, the latest it may be taken is April 1 of the year following when the person turned 70 1/2. For example, if you turned 70 1/2 in March 2013, you may delay taking your first RMD until April 2014. All subsequent RMDs must be taken by December 31, including the year the first RMD is taken. You can take more than the RMD, but consult with your financial advisor to ensure it fits your overall financial strategy. You can also take multiple distributions throughout the year, but the total must be equal to or more than the RMD by December 31.
How is it calculated? A RMD is calculated by dividing the prior December 31 balance by a life expectancy period that the IRS publishes in various tables (i.e. Joint and Last Survivor Table, Uniform Lifetime Table, and Single Life Expectancy Table). The table used depends on who the beneficiary of the account is. The IRA custodian or retirement plan administrator usually does the calculations, but the individual is ultimately responsible for the correct amount. If the amount taken is more than the RMD, the excess may not be applied to future years.
Do I pay taxes? If a RMD is subject to taxation, it is taxed at the person's ordinary income rate in the year the RMD is received. A RMD from a Roth IRA is tax-free. RMD that includes basis that was taxed previously is also not taxed upon distribution.
What if I forget or take too little? The IRA owner is responsible for taking the correct RMD every year. If he neglects to do so, the amount not withdrawn is taxed at a whopping 50% rate. The good news is that this penalty may be waived if it can be shown that the missed RMD was due to reasonable error and that reasonable steps are being taken to rectify the situation.
What if I have more than one IRA account? If a person has more than one IRA account, she must calculate the RMD for each account separately, but may withdraw the total amount from one (or more) account.
What happens to the RMDs when a person dies? In the year the IRA owner died, the RMD is the amount the decedent would have taken. The RMD for subsequent years is be based on the life of the designated beneficiary. If an IRA owner dies before she reaches 70 1/2 years old, a different set of RMD rules come into play. Generally speaking though, the entire IRA must be distributed 1) within 5 years of the IRA owner's death or 2) over the life of the beneficiary starting no later than one year after the owner's death.
The method by which a person holds title to property in Hawaii affects how that property is distributed and taxed upon a person’s passing. Therefore, for estate planning purposes, it is important to know the differences between tenancies and understand the ramifications they may have on an estate plan. The following is a brief explanation of how title to property may be held in Hawaii.
Tenancy in Severalty: This how a single party owns property. The party’s interest is “severed” from others.
Tenancy in Common: Tenancy in Common exists where two or more parties each hold an undivided, specific interest in a property. In addition to natural persons, corporations, partnerships, trusts and estates may hold property as a tenant in common. Each party’s interest is equal to the other tenants unless otherwise specified. Furthermore, every party is entitled to possession of the entire property with the co-tenants. If no tenancy is specified, tenancy in common is the default method of holding title unless otherwise provided by law.
A tenant in common may sell or encumber her interest at any time. The new owner then becomes a tenant in common with the other existing tenants. Also, a party’s interest in the property is subject to the claims of that party’s creditors. Finally, since there is no right of survivorship between tenants in common, each party’s interest will pass to his heirs/devisees as part of his estate.
Joint Tenancy with Rights of Survivorship: Two or more natural persons may hold property as joint tenants with rights of survivorship. This means corporations, partnerships, trusts and estates may not be joint tenants. Each joint tenant holds an equal undivided interest in the property. "Right of survivorship" means that when a joint tenant dies, his interest automatically passes to and is divided equally among the remaining joint tenants. The intent to create a joint tenancy must be specified, otherwise it is assumed that the property is held as tenants in common.
A joint tenant may transfer her interest without the consent of the other joint tenants, but this will sever the joint tenancy with the other joint tenants. Therefore, the holdover joint tenants will continue to hold the property jointly, while the new owner will own the property as tenant in common with the holdover joint tenants.
A creditor of a joint tenant may generally satisfy his claim against the joint tenant's interest in the property.
Tenancy by the entirety: Tenancy by the entirety is only available to married couples, civil union partners and reciprocal beneficiaries. While alive, each person is considered to be the owner of the entire property. This means one party may not unilaterally convey his interest without the consent of the other. In other words, any conveyance document must be signed by both persons. As with joint tenancy, upon the death of one of the parties, the decedent’s interest passes automatically to the surviving party. Another benefit of holding property as tenants by the entirety is that a person’s creditor individually cannot use the property to satisfy individual debts. However, creditors of both parties may do so. As explained in a previous post, Hawaii law now allows a couple’s trusts to own property (as tenants in common) while retaining the tenancy by the entirety creditor protection.
As you can see, how property is held can affect the way it is transferred, distributed and controlled in the future. Therefore, careful thought should be given to the method of ownership of property in Hawaii, especially for estate planning purposes.
In a prior post, we discussed how property is classified between "Marital Separate Property" and "Marital Partnership Property" ("MPP") in Hawaii during a divorce. In this post, we will review how MPP is categorized and distributed.
In Hawaii, it is important to note that Hawaii Revised Statutes Section 580-47(a) affords the family court wide discretion when dividing MPP. The Hawaii Supreme Court has espoused using business partnership principles as guidance when divvying up MPP and, therefore, treats a marriage like a business partnership. While the Hawaii Supreme Court has recognized that "there is no fixed rule regarding property division other than what is provided in Hawaii Revised Statutes Section 580-47", the family court may use something called the Marital Partnership Model, which is based on the Hawaii Uniform Partnership Act, as guidance.
As a result, MPP in a divorce is placed into one of five categories and where a piece of property is placed will generally determine how the property is ultimately distributed. Remember, these are only general guidelines and there is no guarantee of a 50/50 split. The court has the discretion and equitable authority to divide MPP as it sees fit. The following are the categories established by case law in Hawaii:
Category 1: The net market value [NMV], plus or minus, of all property separately owned by one spouse on the date of marriage, but excluding the NMV attributable to property that is subsequently legally gifted by the owner to the other spouse, to both spouses, or a third party.
What this means: Hopefully, 100% of premarital property owned by each spouse will be returned to the respective parties. The NMV is determined at the date of marriage.
Category 2: The increase in the NMV of all property whose NMV on the date of marriage is included in Category 1 and that the owner separately owns continuously from the date of marriage to the date of the conclusion of the evidentiary part of the trial [DOCOEPOT].
What this means: Appreciation from all Category 1 property will likely be divided between the two parties with a 50% cap for non-owner spouse. NMV determined at date of divorce.
Category 3: The date of acquisition NMV, plus or minus, of property separately acquired by gift or inheritance during the marriage but excluding the NMV attributable to property that is subsequently legally gifted by the owner to the other spouse, to both spouses, or to a third party.
What this means: Hopefully, 100% of gifts and inheritances acquired during marriage that weren't separated are distributed to back to the owner-spouse. NMV is date of acquisition.
Category 4: The increase in the NMV of all property whose NMV on the date of acquisition during the marriage is included in Category 3 and that the owner separately owns continuously from the date of acquisition to the DOCOEPOT.
What this means: Appreciation of Category 3 property will likely be divided between the two parties with a 50% cap for the non-owner spouse. NMV is determined at the date of divorce.
Category 5: The difference between the NMVs, plus or minus, of all property owned by one or both of the spouses on the DOCOEPOT minus the NMVs, plus or minus, includable in categories 1,2, 3, and 4.
What this means: This is basically the catch-all category where the "leftover" property goes. Usually this includes joint marital property and all jointly and separately owned property purchased with marital funds or resulting from marital efforts.
Categories 1 and 3 are considered the parties' "capital contributions" to the marriage/partnership and according to partnership law, are likely to be returned to the respective parties. Categories 2 and 4 are "during the marriage increase in NMVs of Categories 1 and 3 properties" and are considered "partnership profits" to be generally shared equally.
The Supreme Court of Hawaii has stated that "if there is no agreement between the husband and wife defining the respective property interests, partnership principles dictate equal division of the marital estate where the only facts proved are the marriage itself and the existence of jointly owned property."
Having a valid premarital or post-nuptial agreement can help protect each parties' personal assets (and their appreciation during the marriage) by qualifying them as Marital Separate Property and also provide a framework for how MPP will be divided and distributed in event of a divorce.
Samuel K.L. Suen is an attorney based in Honolulu, Hawaii specializing in estate planning, probate, conservatorship and guardianship matters.
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