Protecting Your Assets: Part I


cohabitation agreement

Editor’s Note: This is the first of a two-part series discussing what constitutes marital property, and the legal / illegal methods of protecting your assets in a divorce.

Dividing up property in a divorce can be a messy undertaking, and headaches are bound to occur as the court tries to determine who gets to keep what. Depending on the length of your marriage, you and your spouse are bound to have acquired a lot of property together. It is important to understand what is considered part of the marital estate and the legal methods to try and protect your personal wealth.

First of all, marital property, or the property acquired by either spouse during the course of a marriage, varies by state. It is important to fully understand what your state identifies as marital property, as this will comprise the marital estate that is divided in a divorce.

“Separate” property, distinguished from marital property as what individuals bring into the marriage, typically cannot be divided by the court. It can include property owned by one spouse before they married, property that is inherited, property received as a gift or property the spouses simply agree is separate property.

marital property
Knowing what your state defines as marital and separate property is crucial to protecting personal assets.

In some states, however, the increase in value of separate property over the course of the marriage is considered marital property. Your individual state may also define separate property differently, but understanding even the most general of concepts can help you make important decisions.

It is typically very difficult to protect assets once the marriage has taken place. Some states recognize pre- or even postnuptial agreements, which can be very powerful tools for protecting assets. These contracts usually specifically define marital property, aiming to exclude as much as possible from the marital estate. This is an ideal way to protect assets if your state recognizes these agreements and you enter a marriage with something you would like to protect.

However, it is absolutely essential that such contracts are drafted by an attorney well-versed in not only pre- or postnuptial agreements, but also familiar with the divorce laws in your state. A poorly drafted pre- or postnuptial agreement can create unwarranted feelings of protection for a spouse. This false sense of security can lead spouses to be casual with their property during the marriage, which can produce problematic results when they learn the pre- or postnuptial agreement is not enforceable due to the way it was drafted or how it was entered into.

Your individual state may also have estate planning laws that can help protect assets as well. Ideally, these matters should be fully explored before a marriage takes place, as spouses are subject to the marital property laws of their state as soon as the marriage occurs.

Even if you are unaware of the laws in your state, a simple and easy way to try to protect assets is to keep them separate and not in joint names, particularly assets you had at the time of the marriage or acquired individually by gift or inheritance. This won’t always protect the asset, but it can help avoid the appearance of “gifting” separate property to the communal marital property.

If no agreements were in place to keep separate property out of the estate, a good practice for personal and household items is to simply remove them from the control of the other spouse. However, you must ensure this method is done with transparency, and that the items are maintained for inspection. Although this doesn’t guarantee you will be awarded those items in the divorce, it can ensure that they don’t disappear and is helpful for personal items that have significant sentimental value.

Use of videotapes, photographs or other means of inventorying possessions, even if they are not in your control, can be useful as well. This way, the court can at least be assured the items existed at one time, rather than trying to sort out a “he said, she said” situation over personal and household effects.

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