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 instance, one of you may decide to give up your apartment and have a garage sale to get rid of extra kitchen gear or furniture. But it also might be wise to consider how this property may be divided in the event the marriage ends, or generally consider the basics of managing your marital property.
When a couple gets divorced, marital property (that which is acquired during the marriage or otherwise shared) gets divided according to state marital property law. 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 to best manage your marital property.
Managing Marital Property: What You Should Do
Do consider entering into a prenuptial or premarital agreement prior to marriage, to make clear which property isn't subject to division upon your death or 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 property you had before marriage, or 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 (or as your personal asset) upon your death or divorce. Generally, this means you shouldn't "commingle" property you owned prior to marriage with property you and your spouse acquire during the marriage, or it may become difficult -- if not 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 upon divorce or the death of the property owner. This is especially true if the increase (or "appreciation") in value is considered "active" rather than "passive." Passive appreciation is, for instance, the increase in value of a bank account as a result of interest earned, or the 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 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 after marriage will 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 characterization as non-marital property.
Do keep proceeds acquired from any personal injury case during marriage separate, if you want those funds to retain their non-marital property character. 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, and depositing that income into non-marital accounts can result in "commingling," so that the non-marital account is no longer construed as 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 -- i.e. bookkeeping or entertaining clients -- but they can also be more subtle -- i.e. 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.