For a variety of reasons, some people have a desire to keep their own assets and funds separate when entering a marriage. They do not want to co-mingle their separate property and assets. Frequently, folks are interested in keeping gifts and inheritances separate, and with good reason. Some parties might be interested in separately maintaining assets for their children from a previous marriage or relationship.
There are some easy “fixes” to keep assets separate (some much easier than others) and even if you have already married, there’s a chance that some of your property is just that – “your” property and yours alone.
The Easiest Way to Keep Assets Separate
The simplest method is to not co-mingle at all. Co-mingling, in this instance, is the act of taking funds or property that previously belonged to only one spouse and mixing it into marital funds or property.
For example, if a husband inherits $500,000 worth of real estate, he is not required to co-mingle it. He should not deed the property to himself and his wife. If the property is sold or rented, the husband can just keep the monies separate. He should avoid depositing all or any of the money into a joint account. This same approach can be used with cash, stock accounts, automobile(s), and other valuable properties that are inherited or given solely to one person.
When a person takes an inheritance or gift and uses that money to make improvements to the marital home or to some other marital asset, then that formerly separate property has now become marital. As an example, if a wife is given a gift worth $500 that she sells in order to use the cash to make a down payment on a family automobile, that separate money has now morphed into a marital and divisible asset.
What About Separating Assets That Could be Construed as Marital?
Another choice for keeping assets separate is to use a prenuptial agreement (prenup). This agreement states what is to happen to a couple’s assets if they are to divorce or if one of the parties dies. In a case where one spouse already owns property that would then become marital, such as a house that the couple moves into during their marriage, a prenup can make it clear that that house would still belong to the spouse who owned it rather than being divided as marital property in the event of a divorce.
If parties want a prenup, there are some basic legal principles that must be followed to have a valid and enforceable prenup. First, a prenup must be in writing to be valid. Oral promises will not be enforceable. Additionally, both parties must sign the agreement and not be under duress or coercion to sign. There will be issues with the validity of a prenup that was only signed when one party told the other that “the wedding won’t happen unless you sign”, as this can be seen as a form of coercion. It is recommended that both parties have their signatures notarized.
There must be full disclosure of all assets as well. A person cannot waive his or her rights to something if they don’t know what is out there. And, along those same lines, the agreement must be fair and conscionable. The agreement should not scream that it is very favorable to one party over the other. A prenup must be transparent.
Each party should have his or her own attorney when drafting and/or reviewing the agreement. There are 28 states that have uniform laws about what is needed for a valid prenup. Thus, the requirements in the remaining 22 states vary. Be sure to have your proposed prenup agreement reviewed per the laws of your state. Prenups can address many issues, including: property rights and obligations; property division; alimony and spousal support; and inheritances. Think of a prenup as a financial plan, not a divorce plan.
Although a prenup can be useful for keeping assets separate, a prenup can’t address child custody and child support.
Other Assets to Consider
On a related note, parties should look at and review their insurance policies and their estate planning documents. Life insurance policies should name the proper beneficiary. Other financial account ownership, co-ownership, and payable on death accounts and provisions should be reviewed as well. When unnamed, these will be assumed to go to your spouse as long as you are married. You should still review all of your accounts to make sure your spouse is not named in those policies, as their name is not automatically removed in the event of a divorce.
What if I’m Starting to Divorce Now?
If you are undergoing a divorce and are curious about which of your assets can be kept separate from your marriage, your best bet is to speak with a divorce attorney. They can help you discern which items belong solely to you and which assets your spouse may be able to make a claim to. In a worst case scenario, they can discuss strategies for negotiating receiving assets that are important to you that may otherwise be divided (ie getting the family home, keeping appliances that you purchased prior to marriage, etc).
To speak with an attorney about your assets, contact us or give us a call at 919-787-6668 to schedule a consultation.
