Protecting Finances During Divorce

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Not all money that spouses have will be classified as marital property subject to division.  Some assets can be classified as marital property.  The more the parties set aside marital property prior to marriage, the less the court has to divide at divorce.

How can a spouse stockpile separate property?

First, it should be helpful to clarify the difference between separate and marital property.

Separate property is property a party acquired prior to marriage and intends to keep as his or her own property throughout the marriage.  A simple example:  a trust created by a parent that the spouse can access for funds.

Marital property is property a party acquires during the marriage.  A presumption exists that all property that parties obtain during the marriage is marital property.

With these definitions in mind, a party with significant wealth coming into a marriage might well want to keep that wealth separate during and especially after the marriage.

To accomplish a complete separation of that wealth, the best tactic would be to have a prenuptial agreement where the parties set out what is separate property and how it will be handled during the marriage and in the event of divorce.  In this way, a party with wealth can specify that all of those assets and all of the growth of those assets during the marriage remain separate property.

Short of a prenuptial agreement, the best protection a spouse has for a separate property is complete segregation of the asset – keep it titled in the name of that spouse always in an account separate from all marital accounts and never commingle the asset with other marital assets.  In terms of a trust, if a spouse puts some of the trust proceeds to use for support of both spouses during the marriage, it creates a commingling problem, and if it happens repeatedly, it creates a pattern that suggests a marital reliance on the asset that could be used to justify a marital portion of the entire trust.

Another common source of acrimony:  real estate.  If after marriage spouses move into the home of one spouse that was titled only in the name of that one spouse, to protect that asset for that spouse becomes very tricky.  The spouse can keep it titled separately, but if income from both spouses is used to pay the mortgage or for maintenance or to upgrade part of the house, that action would be seen as ceding some marital portion to the other spouse.

What about retirement accounts?  They usually remain separate, so do they stay separate property?  Not automatically.  Any increase in the retirement account of one spouse during the marriage is presumed a result of marital contributions.  To safeguard the retirement account, the spouse would need to do that in a prenuptial agreement.

As you can see, many spouses fail to take adequate safeguards prior to marriage to protect key separate assets.  Proper financial and legal planning should take place prior to marriage to give these assets as much protection as possible in the event of divorce.

If you have questions about safeguarding separate property prior to marriage, contact us – we can help.

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