Arranging your Financial Affairs: The Legal Consequences of Marriage
By Frederick Hertz
Q. My boyfriend and I are getting married this summer, and we were told that being married means that all our assets and debts from now on are “one.” Is that true, and if so, how should we be arranging our financial affairs?
A. It’s good that you are asking this question in advance of your marriage, as most couples don’t learn the legal rules until they are facing a divorce. However, the answers to your questions aren’t so simple. There are three dimensions to the financial aspect of marriage: (1) what are your state’s legal rules that apply to your relationship; (2) how would you prefer to handle your affairs, notwithstanding these legal rules; and (3) what tasks should you be taking on to organize your financial and legal lives, in light of the answers to the first two questions.
THE LEGAL RULES
While the economic rules of marriage differ from state to state, most states treat assets and debts that either partner acquired before marrying as separately owned, even after you get married. Anything that either partner accumulates after marriage (or registration, if you live in a state that recognizes domestic partnership or civil union as marriage-equivalent), however, is presumed to be shared, regardless of who earns the money or incurs the debt. It doesn’t really matter whose name is on the account or the credit card bill. If there’s a break-up, the courts can allocate all of the joint assets and debts; in community property states, most of the things acquired post-marriage are split up 50/50, in other states assets and debts are divided up according to numerous factors, including the source of the funds and the financial needs of the spouses.
Each state has its own particular rules dealing with overlapping assets such as a business or house that was owned pre-marriage but grew in value after the marriage, and each state also has complicated rules regarding pre-marital debts. In California, for example, the post-marital income of either party can be tapped to satisfy the pre-marital debts of either partner, because post-marital earned income is considered jointly owned regardless of which partner is the employee. And it’s the law of the state you are living in at the time of a dissolution that counts, not the rules of the state where you married or registered. Thus, you can’t be sure at the time of your marriage or registration what exactly the legal rules will be, if you should end your partnership.
YOUR OWN PLANS
If you don’t like these rules (and this assumes that you have learned the rules), you can enter into a written agreement to modify them—but only to a limited extent. Typically you can’t modify the rules of liability to a creditor, because they aren’t signing the agreement. You can’t opt out of child support obligations, because those rights “belong” to your children. And in some states, you only have a limited ability to modify spousal support (alimony) rules, because these agreements are considered “disfavored” contracts. The theory is that the legislatures know what is best with regard to your long-term financial needs, and if you don’t like those rules, then the best choice for you to is remain unmarried.
It isn’t easy to design your financial partnership. If you want to create your own “business plan,” you will have to resolve who owns what, who owes what, whether or not you want to share your abundance or your deficits, and whether you want to help each other out financially in the event of a break-up. Even for the happiest of couples, resolving these issues can be very challenging emotionally, as it raises hard question about dependency, attitudes toward money and beliefs about how life is to be led. Moreover, it is very difficult to predict what one’s health (both medical and financial) really will be like in the distant future, let alone consider how one is going to feel if one’s relationship unravels. Of course you should be addressing these issues if you are getting married—but that doesn’t make it easy to do so!
You also will want to vet your plans with an eye on what would happen if one of you died. In most states there are specific rules about inheritance, especially if you died without a will, and so it can be helpful to add a partner to a title or an account, or name them as a “death beneficiary.” But be careful—how you characterize assets while you are alive can determine how they are allocated upon dissolution, not just upon death.
ORGANIZING YOUR AFFAIRS
There are three multi-faceted dimensions to your task list. Your first job is to have the discussions with your partner—preferably before your wedding—to figure out what your desires and intentions are. You will need to be calm, kind and realistic—and willing to hear what your partner’s point of view may be. Your second assignment is to assemble a prenuptial agreement (and this is much better than waiting to do a postnuptial contract). This generally requires that you each retain counsel, and it usually takes two to three months of preparation and drafting. Finally, you will need to organize your financial records and accounts to reflect your new marital reality—which usually means segregating your premarital assets and debts and creating new accounts for your postmarital shared financial lives.
Your goal is to work towards having your feelings, your plans and your bank accounts all in alignment, so that whatever happens, for better or for worse, you do not face complicated financial battles.
Frederick Hertz is the author of Making It Legal: A Guide to Same-Sex Marriage, Domestic Partnerships & Civil Unions and A Legal Guide for Lesbian & Gay Couples, both published by Nolo Press in Berkeley, California (Emily Doskow, co-author). For more information, visit www.MakingItLegal.net.