Managing Marital Property: Do's and Don'ts

A few states have "community property" laws, which result in a roughly 50/50 split of marital property. Most states use an "equitable distribution" procedure. This method considers the debts and assets of the parties when dividing property.

If you're planning to get married, you and your partner may have discussed combining your property. This may involve disposing of extra household goods or selling an apartment. But it also might be wise to consider how this property may be divided if the marriage ends. It's always a good idea to consider the basics of managing your marital property.

When a couple gets divorced, marital property gets divided according to state marital property law. Generally speaking, "marital property" is any property acquired during the marriage.

Whatever your state law demands, these suggestions will help you manage your property.

Useful Terms for Managing Marital Property

To help you understand marital property management, you should know a few basic legal terms.

  • Separate property. This is any property you owned before marriage and anything you acquire during marriage by gift or inheritance.
  • Marital property. This is property you and your spouse acquire during the marriage or which you both agree is a joint asset.
  • Commingling. When separate property combines with marital property, it is called “commingling." It can be difficult to determine what assets belong to which spouse if they get commingled.
  • Prenuptial agreement. This is a legal document created before a marriage that spells out the division of marital property in the event of a divorce. A prenuptial agreement, or premarital agreement, has many legal requirements and should be drafted by an attorney.
  • Community property. This is another term for marital property.
  • Community property state. Some states follow “community property laws" during divorce. This means that marital property is divided 50/50 in divorce proceedings.
  • Equitable property state. Most states use “equitable property laws." Property is divided according to each partner's needs and contributions to the marriage.

What You Should Do to Manage Marital Property

Do consider entering into a prenuptial or premarital agreement before marriage. Such agreements make clear what will happen to your property upon your death or divorce. A prenuptial agreement helps determine what happens to property in a divorce.

Do maintain accurate records for property separate from the marital estate. Separate property may include real estate or personal items you had before marriage. Gifts and inheritances are always separate property.

Do consider separate bank accounts for separate and joint finances. This ensures that each spouse's separate finances remain their own and provides a community account for the marriage.

Do communicate with your spouse about your financial status. Spouses have a fiduciary duty to one another during the marriage. This means they have a responsibility to keep one another informed about their finances. Be honest with your spouse about your accounting.

Do continue to keep all non-marital property separate throughout the marriage to avoid commingling. If you want to keep property in the family after death or divorce, you need a prenuptial agreement.

Do keep proceeds acquired from any personal injury case during marriage separate. A personal injury settlement belongs to the victim. If your spouse had a claim for loss of consortium or caregiving, this would be their separate money.

What Not to Do With Marital Property

Don't hide assets from your spouse, even if they are separate or premarital property. One of the fastest ways to lose a divorce case is for a judge to learn you were concealing money from your spouse.

Don't use separate funds to pay off a marital debt or use marital funds to pay off a personal debt (such as a student loan). Some types of debts belong to the marriage, and some belong to the debtor. If you have questions, you should seek legal advice.

Don't make deposits of income earned during the marriage into non-marital accounts. Income earned during marriage is usually considered marital property. Depositing that income into non-marital accounts can result in "commingling." When that happens, the non-marital account is no longer considered separate property.

Don't open a joint bank account with non-marital funds. It's much more prudent to maintain separate accounts for non-marital assets.

Get Professional Help Managing Your Marital Property

Businesses and property owned before marriage are not always separate property. The common law rule is that anything earned during the marriage becomes community property. This includes any increase in value or income, including:

  • Real estate
  • Rental property income
  • Wages earned during marriage
  • Marital home improvements
  • Retirement accounts
  • Investment accounts
  • Pension plans

Couples planning a marriage should keep in mind that not all marriages end in divorce. Most end when one of the spouses dies. Estate planning is just as important as a prenup and has the same legal requirements as any other legal document.

Marital property typically doesn't become an issue unless a married couple is splitting up, but it could also be a factor in a prenuptial agreement or other matters. If you have any legal questions about marital property, your best bet is to seek professional legal help. Find a family law attorney in your area and get some peace of mind.

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Don't Forget About Estate Planning

Marriage is an ideal time to create or change your estate planning forms. Take the time to add new beneficiaries (including your spouse!) to your will. Consider creating a power of attorney to ensure your spouse can access your financial accounts. Also, a health care directive lets your spouse make your medical decisions if you ever become incapacitated.

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