Separate Bank Accounts Won’t Protect Your Money in a Divorce
When marriages falter, both husbands and wives often look for ways to protect their financial position. What was “what’s mine is yours” becomes “what’s mine is mine.” People often have good reasons for separating assets from their about-to-be-ex, who may have proven to be lacking in trust. But, in most cases, shared assets will remain that way until a court divides them.
Generally, “marital property,” is anything accumulated during the marriage, regardless of which spouse actually contributed more financially. Home purchases, investments (including retirement accounts) and everything from the silverware to a boat are joint assets if acquired during the marriage. Even the dog will be considered joint property. People often are surprised to learn that substantial assets that were placed in one name, such as a house or car or stocks, are still marital property. A property title with only one name on it won’t make any difference to a court if the property was purchased with marital funds.
When storm clouds appear on the horizon, threatening the end of a relationship, one partner sometimes preemptively starts to set aside money. They may withdraw cash from a bank account and hide it in a secret account, buy property, such as jewelry or gold, that stores value, run up the balances on credit cards or ask a friend or relative to hold on to cash. Giving money to a friend or relative for safekeeping can draw them into the divorce as a third party to a fraudulent transfer – not a good idea.
These days, almost every transaction can be traced, and courts likely will claw back any assets that appear to have been moved in anticipation of a divorce. Even if the money can’t be found, if one spouse drains an account and can’t offer a valid explanation, a court likely will take those missing resources into consideration when dividing assets. A $100,000 account that was abruptly drawn down to $50,000 is OK if you can show it was used to pay bills, but “I don’t know where the money went” won’t win a judge to your side. Although the courts or the other spouse’s accountants and lawyers may not be able to find the $50,000, a judge may count it toward the offending partner’s share of the marital estate.
Some assets may be protected
There are exceptions to this rule. Assets owned before a marriage or inherited by one party during a marriage may not be considered marital property, but this gets tricky.
“Comingling” these assets may cause a court to consider them joint property. For example, a vacation home one spouse owned before the marriage may be considered joint property if marital funds were used for its upkeep or to make improvements.
An inheritance could be considered marital property if it is placed into an account with marital funds, even if that account is in only one spouse’s name. If you put away an inheritance in a separate account and don’t contribute any marital funds to that account, a court will likely decide the other partner is not entitled to any portion of it. But place the inheritance into a joint account (or even an account in your own name that contains marital funds) and it becomes marital property. That portion of a retirement account that existed before the marriage can be retained by the individual, but contributions and growth that occurred after marriage are joint property.
Couples often don’t think a court’s division of assets is fair, and one of the most common complaints about a divorce is a feeling that one partner was undeservedly enriched at the expense of the other. Unfortunately, financial loss as well as emotional hurt, is one of the costs of divorce. A prenuptial agreement won’t spare you emotional damage, but it will lay out an agreement for an equitable distribution of assets if love turns sour. And just like in a divorce, both parties who sign a prenup should get the advice of their own lawyers. As with everything else in life, plan for the worst outcome and chances are you never will have to fall back on such a contingency.
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