What happens if you don’t keep your assets separate? You guessed it…

Feb 18, 2021 | Finances, Prenuptial Agreements, Second Marriages

When you decide to take the plunge with the love of your life, you may envision a life so intertwined that you don’t know where you end and they begin. This is a beautiful thought, and in fairytales it does often work this way. In the real world, though, it can be a little messier. That doesn’t mean marriage isn’t worth it because it is, it just means that you need to be prepared to put in a little more elbow grease to ensure that you don’t get a wrench thrown into your gears.

Entering into a prenuptial agreement is an excellent way to jump start your marriage motor. Prenups help couples handle their assets and debts, detailing what belongs to the induvial as separate property and what belongs to both parties equally as marital property. It’s important to know what these terms mean and also how you should go about ensuring that your separate property doesn’t mistakenly become marital property during the course of the marriage.

What are Premarital Assets?

AKA “non-marital assets” in some states.

Premarital assets are the things you own before you officially tie the knot. Of course, everyone’s premarital assets are different and oftentimes those marrying earlier in life have fewer assets. Likewise, those marrying or remarrying after they’ve established their careers, or have even retired, can own significantly more premarital assets. Of course, there’s always the chance that you achieved TikTok stardom before the age of 21 and you’ll be getting married with a sizeable nest egg.

In some states, the assets you own before you get married will be considered your separate property in the eyes of the law, even after you walk down the aisle. If you live in an equitable division state, this depends on many factors, including how long you have been married.

Not so straight forward, right? Unfortunately, the lines between separately owned property and property that equally belongs to both people in the marriage can blur pretty quickly. For example, what happens if your spouse invests their money in a business that you owned before you got married? Is the business marital property?

What is Marital Property?

You may have guessed by its name that marital property is the property you or your spouse acquires during marriage, or property you owned prior to marriage that has been co-mingled, or property that the laws of your state deem to be marital property. Unlike premarital property that is treated as separate property, the laws of the states vary when it comes to categorizing marital vs. separate property.

Of course, there are exceptions to most rules and the Common Law and Community Property Law rules are no different. That can make the separation of marital assets even more complicated, and if you have not entered into a prenuptial agreement with your spouse, then the laws of the state you live in will determine who gets what if the marriage comes to an end.

So, you see, even if it may seem pretty simple at first glance, the issue of who owns what becomes complicated after you are married. Entering into a prenup with your significant other ultimately saves individuals costly attorney fees at the end of a marriage. Prenups can even help couples avoid disagreements altogether by providing a roadmap for asset management and asset allocation.

How Do You Keep Your Assets Separate?

It is important to remember that, even if you do have a prenup, you still need to make sure you’re managing your assets in accordance with the prenup. Drawing up and agreeing to the terms of a prenup is like buying all of the ingredients you need to cook dinner. You still need to cook the actual dinner if you want to enjoy it!

Because a prenup details each person’s individual assets and debts before marriage, and how these assets and debts will be owned during and after the marriage, it is important that the property you wish to own separately remain separate. Couples often get into trouble when they co-mingle assets.

Co-mingling separate property with marital property creates ambiguity. For example, if only one partner’s name is listed on the deed to the house, but the property taxes are paid from the other spouse’s checking account, then the house may inadvertently become marital property. If the marriage ends before matters can be straightened out, then you’ll have to pay lawyers to help figure it out.

You may also co-mingle investment income inadvertently. If you and your partner decide that your investments are to be owned separately, you’ll need to be sure that dividend or interest payments are deposited into checking accounts that are owned separately rather than jointly. Again, money that is deposited into joint accounts could become marital property even though you intended to own it separately.

Another hang up to watch out for is appreciation of assets. If you restore the muscle car you inherited from your dad with the income earned by your spouse, then the car could become marital property. Similarly, if your name is on the deed to the house because you intend to own it separately, then allowing your spouse to pay for the in-ground pool with the money they got from cashing out their separately owned investments could create financial confusion when the marriage ends.

You may think that you will never get divorced and so this financial confusion isn’t a mess you’re going to have to deal with. You might be right about the divorce, but it is important to remember that prenups don’t just protect spouses, they protect children. Especially children from previous marriages. If a spouse dies without a prenup, then there’s a chance your child from that earlier relationship won’t inherit that muscle car.

These scenarios could play out many different ways depending on the laws of the state you live in, how amicable a divorce is, and how complicated the assets are. That’s just to name a few! The bottom line is that without a prenup, you and your attorney will have to spend more time figuring it out at a time when you’ll already have a lot on your plate.

Life Changes, So Can Your Prenup!

If you’re overwhelmed by what’s been discussed so far, take a deep breath and remember that getting married is wonderful! Starting a life together is exciting even if the ins and outs of your financial management plan is less glamorous. One thing is for sure, you can plan until you are blue in the face only to discover that much of that planning has gone out the window.

Confucius said, “When the wind blows, the grass bends,” which is a very poetic way of saying stay flexible. Life is constantly tossing us curve balls and fortunately, you can make changes to your prenup to account for these twists and turns. If, say, one spouse receives a windfall of money from an investment opportunity or from playing the Powerball, then maybe you should consider renegotiating the prenup so all remains fair.

Perhaps one spouse doesn’t get lucky playing the lottery but instead experiences a business loss. The other spouse may need to step in and help the suffering spouse financially recover because, after all you did agree to love and cherish for richer or for poorer. If this happens, you might feel that your original prenup no longer feels entirely fair. If you find yourself in this situation, you should talk to your spouse and see if they are agreeable to reevaluating your prenuptial agreement.

Although you could make an informal agreement, it’s usually a good idea to go ahead and make a formal amendment to your prenup. Doing so will help you stay on course and keep your assets and your financial liabilities organized, which is the point after all!

Remember, you can and should reach out to an experienced attorney when you have questions about whether you should amend your prenup and how you should go about doing so. Even if you don’t have a prenup, an attorney could help you prepare a postnuptial agreement, which serves the same purpose as a prenup.

With your financial affairs in order, you and your partner can focus on all of the joys that a life together brings, like building a home and raising a family (or furkids) together. Or perhaps you will forego the traditional white picket fence lifestyle and instead backpack around the world together. Whatever you decide, entering into a prenup and then abiding by that prenup will help the gears of the marriage run smoothly.

You are writing your life story. Get on the same page with a prenup. For love that lasts a lifetime, preparation is key. Safeguard your shared tomorrows, starting today.
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