Newly married couples focus their time exploring their new life together. It's an exciting time full of romance and dreams for the future. In many ways, new couples just want to have fun. It's easy to see why discussions of money and property get placed on the back burner.
As married couples with a few years under their belt and those who have loved and lost know, marriage carries a few more sobering realities as well. Marriage brings certain legal implications with respect to property, money, and debt. Being legally married means your spouse's income (and debt) are now yours. If one of you runs up a huge credit card bill, you are both on the hook when the bill comes due.
The good news is that many couples can cooperate and work together to address financial issues early in their marriage. They may never need the services of a divorce lawyer. Educating yourself on property rights before marriage may actually relieve one area of marital tension. This article should provide some helpful tips and information to consider.
Marriage Money Problems and How to Avoid Them
An otherwise close and loving relationship can quickly come undone under financial stress. Money problems are one of the most common causes of marital discord. While it's hardly romantic, discussing financial matters before and during your marriage is important.
At the beginning of a marriage, set clear financial expectations:
- What are essential expenses?
- Will you have joint or separate bank accounts?
- What financial contributions will each person make to the household?
- Who will actually pay the bills and balance the checkbook?
- Will you rent or buy the marital home?
Couples also need to decide their future plans, and what it will take to afford that future. For instance, it costs a lot to raise children when you add up the cost of childcare, medical and dental care, activities, and a college education. Estate planning and retirement require further consideration. Will you have enough money saved to meet those goals?
Depending on their economic circumstances, most people entering into married life after being single have separate financial accounts. Once married, couples must decide whether to create joint accounts or maintain separate accounts.
A joint checking/debit account permits both spouses to access funds as needed to pay bills and expenses. A couple may elect to have one joint account for marital bills. They may both use direct deposit at the same bank so their paychecks deposit regularly into the account. They may also agree to have one joint savings account for large expenses that occur less frequently. For example, many couples find it useful to have a savings account for vacations. Others may have a savings account for things like major car maintenance or repairing or replacing a furnace or air-conditioning unit.
Couples may also find it beneficial to use one main joint account but maintain smaller separate accounts for matters personal to them as individuals. If they do this, they still need to agree on how much funds to directly deposit into these separate accounts and with what regularity.
Sometimes couples enter into marriage already having real estate or retirement accounts. Retirement assets may include a pension, 401(k), and/or Individual Retirement Account (IRA). Newly married couples need to determine whether to maintain pre-marriage real estate separately or to place it in joint tenancy with rights to the surviving spouse. Real estate holdings can also be placed into a trust account for the married couple. Federal and state laws may vary on how pensions, 401(k)s and IRAs pay out whether parties remain married or get divorced. Couples' decisions on how to handle these accounts going forward may have tax implications. Consulting with a financial planner may be a good idea.
Create a Marital Budget
Couples can create a marital budget even before they get married. They likely had to work together to come up with a budget for the wedding and reception. They should use that experience as married persons to create a budget for a marital household.
A marital budget will take into account the income sources available to both parties for the marriage. Whether both parties work outside the home or one party serves as the breadwinner and the other as the homemaker, a marital budget helps a couple control and monitor expenses. Sometimes one person handles the budget and checkbook on a regular basis. If that's the case, both still need to meet and go over the budget and make adjustments from time to time. The budget should address regular household expenses such as rent/mortgage, utilities, food, clothing, motor vehicles, etc. Couples can find many resources for budget planning with a quick internet search. There are budgeting apps and financial tips. It may help to start with simple income/expense worksheets.
Oftentimes, before couples decide to become parents, they will set up their budget to save for major purchases, investments, and retirement. Even blended families will find it beneficial to create a budget to address these items. Of course, the financial circumstances of raising children might cause an adjustment in what can be saved or set aside.
Prenuptial Agreements and Postnuptial Agreements
When a married couple has substantial assets earned or inherited before the marriage, they may want to seek out legal advice to see how their state law will treat these funds after they are married. If they have significant assets or debts prior to marriage, they may want to consider entering into a prenuptial agreement before the marriage.
In a prenuptial agreement, a couple can detail what each spouse will retain separately if the marriage fails. It can also provide structure for other financial arrangements that may occur in a divorce, such as whether there will be spousal support or alimony. It can address inheritance rights for children from a prior marriage. It can address a separate business of one married person in a manner that does not bring the assets or debts of the business into the marital property.
If parties have not entered into a prenuptial agreement and have already married, then they may be able to enter into a postnuptial agreement that can accomplish the same purpose. Although prenuptial agreements are common in all states today, postnuptial agreements may be new to your state.
Postnuptial agreements usually will only address the finances of the married couple. Some states may not accept their use for issues of child custody or child support. When courts review the enforcement of a postnuptial agreement, they will review them for their fairness to both parties. Typically, the law requires that a postnuptial agreement meet the following conditions:
- Be placed in writing;
- Entered into voluntarily, without duress;
- Occur after full disclosure of income, assets, and debts;
- Not be one-sided in outcome; and
- Be signed by both parties
Some states view postnuptial agreements with greater scrutiny than prenuptial agreements. For example, in New Jersey, these mid-marriage agreements are often seen as coercive. In a prenuptial agreement, either party can walk away when they cannot agree on terms. In a postnuptial agreement, one party often wants to remain married and is pressured to sign the agreement to avoid further deterioration in the marriage or a possible divorce.
Marital Property During Divorce: Who Owns What?
Possessions acquired by partners after they get married are generally considered to be marital assets. Although, each spouse may claim certain items as a practical matter. This property is referred to as "marital property," which really only matters when partners proceed with a divorce or legal separation.
Marital property generally does not include property that was acquired by either spouse prior to the marriage. Nor does it include inheritances or personal gifts unless they were converted to shared use.
Marital assets and debts become part of the division of property upon divorce. For those who live in community property states, marital property is usually divided right down the middle. But more states use an equitable division model in which the needs and assets of each party are carefully considered. With equitable distribution, courts can balance out the couples' division of assets and debts. Results may not always be a 50/50 split but one that weighs the equities of the situation.
Everyone enters marriage with the belief that it will last, but roughly half of all marriages end in divorce. It makes sense to take precautions with respect to property rights. For instance, any property acquired with nonmarital funds (such as an inheritance) is considered separate property, as are personal injury lawsuit awards. But if that separate property is "commingled" with marital property, it will be difficult to separate in the event of a divorce.
Have More Questions About Marriage, Money, and Property? Contact an Attorney
If you have more questions and want to read more, visit the Divorce and Property Section of FindLaw's Family Law Center. It provides more information about marital (or communal) property and debt, how property is treated in a divorce, how marriage affects taxes, and related topics.
There are many more details and exceptions to marital property law. If you are planning marriage but have questions about pre-marital financial matters, you may seek legal advice. Married couples considering divorce or legal separation may also want to consult with someone familiar with state laws in their state. In either situation, consider talking with an experienced family law attorney to address your concerns.