Can Separate Bank Accounts Keep Your Property Separate If You Divorce?

business evaluation in a divorce

According to a recent Bank of America survey, younger generations – millennials particularly – have chosen to keep separate bank accounts even after they marry.  Does the absence of a joint checking or savings account truly keep money separate during marriage? If not, what can couples do prior to and during marriage to keep property separate?

The law is actually very clear on this point: all property accumulated during the marriage is presumptively marital property.  So, even if spouses keep separate accounts and pay bills separately, all income and property accumulated during the marriage is still considered a marital asset subject to division.

While the use of a separate account in and of itself offers little protection, separating property and money could be helpful come divorce.  For example, if one spouse has a house in that spouse’s name only prior to marriage and the spouses make that home their marital residence, the fact that the house remains in the name of only one spouse does keep it as separate property as a starting point.  However, if during the marriage both spouses contributed funds to the payment of the mortgage or the maintenance and upkeep of the residence, those funds could be considered enough of a contribution to convert the asset to marital property. If a spouse wants to hold the house as separate property, the spouse should make all payments and maintenance through that spouse’s separate income in a separate bank account.  At divorce, the spouse can show all these contributions, both before and after marriage, to claim an unequal stake in that property. Conversely, jointly titling the residence in both spouses’ names will create a presumption the residence is marital, and will put the burden on the spouse who purchased the home originally to seek an unequal distribution of the equity in the house (not always easy because the act of jointly titling the house indicates an intent to make the house a marital asset so that the previous separate equity is now gifted to the other spouse).

Assets of significant worth can be maintained separately during the marriage, but the risk, as with the residence example, is commingling marital funds with the separate asset to convert it to a marital asset.  For instance, a spouse with a separate mutual fund that is kept separate throughout the marriage with only contributions from that spouse’s separate property could be argued a fully separate property. However, if contributions are made to the fund with marital property, the commingling creates a conversion problem.

Intent is really the key issue when analyzing property, and separateness is one potential indicator but not a conclusive one, especially if commingling takes place.

The best intent would be a writing – either a prenuptial agreement or a postnuptial agreement where the spouses agree that certain sums remain the separate property of one spouse.  For example, if after the marriage a spouse receives an inheritance, rather than commingle the funds, the spouse could keep the inheritance separate, but if those funds are used during the marriage the problem of commingling arises, as would any increase in the value accrued during the marriage.  To clear these areas up, spouses should reduce to writing their intent about the property – say, that the inheritance shall always be the property of the spouse who initially received it, regardless of any subsequent distributions or uses of the inheritance.

If spouses elect for a prenuptial or postnuptial agreement, they should remember that they are enforceable under only certain circumstances – full disclosure, no coercion, opportunity for counsel and knowing and voluntary entry.  If the terms are grossly uneven, even in light of the other requirements, a court still could choose not to enforce the agreement, so finding the right fairness line is important.

As you can see, spouses have different options to keep separate property prior to marriage separate during and after marriage. Spouses are encouraged to consult with an attorney before marriage if they have concerns about whether their actions to keep something separate has the legal protections intended.

If you have questions about keeping separate property separate in a divorce, contact us – we can help.