Can Personal Income be Kept as Separate Property During a Marriage?
In the U.S., divorce is extremely common and should be planned for, even in the happiest of relationships. Up to 50 percent of first marriages break apart, and second and third marriages fare even worse, with divorce rates of 67 percent and 73 percent, respectively. Therefore, it’s smart to consider the very real prospect of what will happen to property and finances should things break apart.
While planning for this is as uncomfortable for most people as writing out their wills, it is a critical step in dividing things fairly. In most states, property within a marriage is recognized as either separate or marital. Separate property is any assets owned by a person prior to the marriage, where the ownership was never shared with the new spouse. Marital property is anything that is owned jointly, such as houses or bank accounts, during the course of the marriage.
California adheres to this division of property but with an extra stipulation: anything that is gained during the marriage belongs to both parties, with few exceptions. This gets complicated when divorcing couples are trying to decide whether personal income can be kept as separate property during a marriage.
It’s My Money – I Should Keep It, Right?
California family courts are aggressive when it comes to splitting assets equally in a divorce. The guiding principle is that each person should receive 50%, although this is frequently argued against by divorce attorneys when there’s a big difference in what each spouse earns. A skilled lawyer will work to demonstrate that their client’s ownership is completely separate from the other spouse, and personal income is often the main focus.
Many people will share bank accounts, each spouse putting in and taking out money as needed. In some instances, they may have separate accounts but still have their partner as a co-signer. This simple act of convenience can become a roadblock to protecting income during a divorce.
As soon as any asset or income is commingled, it becomes community or marital property. California considers that spouses will share everything for the support of the marriage and that divorce should split everything down the middle. There are ways to protect personal income, but they require planning before anyone says, “I do.”
Protecting Personal Income Against the Risk of Divorce
The most legally sound way to keep income separate during marriage and potential divorce is to create a prenuptial agreement (prenup) before the wedding. It’s even possible to write one out after the vows are said (postnuptial) that achieves the same result. This often feels unromantic to many people, and they avoid discussing it.
However, having that difficult conversation can benefit everyone. Prenups can cover a myriad of topics besides income that spring up in divorce:
- Visitation schedules for inlaws
- Household chores
- Vacation schedules and locations
Hashing out a prenup that is satisfactory to each spouse can be a harrowing process, but it also gives insight into the strength of a relationship. It highlights areas where partners might unknowingly disagree, allowing them to work through those problems before they blow up later. In situations where there are children from previous marriages or significant income, they can prevent arguments that can be damaging to everyone involved.
Keep in mind that prenup agreements must adhere to California’s Uniform Premarital Agreement Act (UPAA). They must be signed prior to the marriage, taking effect on the wedding day. It must be in the form of a written contract, include legal terms, and be signed voluntarily by both parties.
Other Assets That Can Be Kept Separate During a Marriage
While prenups can protect personal income, there are some types of assets that are already protected and considered separate property. For example, any assets owned by each person before the marriage are considered separate unless the name of the other spouse is added to the title during the marriage. This includes family heirlooms but can be tricky when it comes to houses or other real estate.
If one spouse owns a house and the other person moves in and claims it as their primary residence, then it can be considered community property. Keeping their name off the title and paying all bills can be used to argue the home as separate property during divorce proceedings. However, if the second spouse contributed to the improvement of the home, they may be able to fight the separate property claim.
Any money or property that is inherited during the marriage from a will or trust is also considered separate by California. The law assumes that it was intended for the beneficiary only and that no other person has a valid claim to it. Likewise, any gift of money or property from a friend or family member outside the marriage that is given to one partner is assumed to be separate.
Using Personal Income Earned Before the Marriage to Buy Assets After the Wedding
Some exceptions to the rule that anything bought after marriage is marital property include using money that was earned before the wedding. For example, if the money is kept in a separate account and used to purchase a car or real estate, both the money and whatever it buys are considered separate property.
This includes rent or income earned from businesses or properties owned before the marriage. The caveat is that these assets must remain separated and aren’t mixed with community assets. If, however, one spouse owned a business before the wedding and the other spouse played a role in building or supporting that business, it could be argued that the second spouse can claim it as marital property.
Successfully Navigating California Divorce Law Requires a Quality Divorce Lawyer
Ultimately, everyone hopes that their marriage will be the one to stand the test of time. It feels strange to plan for an ending that, in theory, shouldn’t be part of the fairy tale. However, it’s smart to consider all possible outcomes and ensure that personal income can be kept as separate property during a marriage.
Working with an experienced divorce lawyer and potentially a forensic accountant can ease the difficulty of sorting out who will receive which assets. Even if the romance is gone, taking steps for a secure financial future will keep personal income protected so it can benefit the person who earned it. If you are going through a divorce, contact us online or by calling 949-438-3886.