Managing Marital Property: Do's and Don'ts

If you're planning to get married, you and your partner likely have discussed how you will combine your property. For example, one of you may decide to give up your apartment and have a garage sale to get rid of extra kitchen gear, furniture, or even items that might be of significant value like family heirlooms or jewelry. But it also might be wise to consider how this property may be divided in the event the marriage ever 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 defined as anything that is acquired during the course of a marriage. A few states have "community property" laws, which result in a roughly 50/50 split of marital property. But a majority of states use an "equitable distribution" procedure in which the needs and assets of each party are considered when dividing marital property.

Regardless of your state's laws and your family's particular situation, the following suggestions will help you decide how best to manage your marital property.

Managing Marital Property: What You Should Do

Do consider entering into a prenuptial or premarital agreement prior to marriage. Such agreements make clear what will happen to your property upon your death or divorce. With one, you can prevent undesirable arrangements in how your property is divided in a divorce.

Do maintain accurate and complete books and records to establish the separate nature of property you wish to keep independent from the marital estate. Property you may want to keep separate can include things you had before marriage. It can also include gifts or inheritance you receive during the marriage.

Do continue to keep all separate property separate throughout the marriage, if you're concerned about keeping it in your family upon your death or divorce. You should also do this with other things that you would also like to keep as a personal asset. Generally, this means you shouldn't "commingle" property you owned prior to marriage with property you and your spouse acquired during the marriage. In cases of "commingling," it may become difficult or even impossible to legally determine if it's separate or marital property.

Do be aware that the increase in value of nonmarital property may be considered marital, so that each spouse is entitled to a share of the increased value of a possession upon divorce or the owner's death. This is especially true if the increase in value is considered "active" rather than "passive." (Such increases in value are officially referred to as "appreciation.") Passive appreciation is, for example, the increase in value of a bank account as a result of interest earned. Passive appreciation also occurs with an increase in property value that results from standard inflation. Active appreciation, on the other hand, occurs as a result of some form of effort, such as repainting rental property, home improvement projects, or actively managing a stock portfolio.

Do use only your non-marital property to purchase other property that you want to be considered separate property. In other words, a boat that you pay for with money you had before marriage and kept in a separate account during marriage may be considered separate or non-marital property. But if your spouse pays for part of it, or even helps maintain it, the boat could lose the status of non-marital property.

Do keep proceeds acquired from any personal injury case during marriage separate, if you want to prevent them from becoming you and your spouse's marital property. The money you get from a personal injury lawsuit is yours alone, except for any portion that reimburses you for your lost income or compensates your spouse for the loss of your services or companionship.

Managing Marital Property: What You Should Not Do

Don't use separate funds to pay off a marital debt, or those funds could lose their non-marital character.

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, even if you intend to keep track of which portion is separate. It's much more prudent to maintain separate accounts if you wish to keep non-marital assets separate.

Don't assume that just because you owned property prior to marriage, no portion of it will be deemed marital property. For example, if the home you owned before marriage increases in value during the marriage because of you and your spouse's efforts to maintain and improve it, your spouse may be entitled to a portion of that increase in value.

Don't assume that a business you owned prior to marriage remains entirely a non-marital asset after marriage. If your business or professional practice increases in value throughout the marriage due in part to your spouse's contributions, your spouse may be entitled to a share of the increase in value upon divorce or your death. Such contributions can be obvious, such as in bookkeeping or entertaining clients. But they can also be more subtle, such as in taking care of the home and children so that you can focus on running the business.

Get Professional Help Managing Your Marital Property

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.