The way a couple manages their day-to-day finances in a relationship while married doesn’t necessarily follow the way the finances are split in a divorce. There are several factors that go into determining whether or not an asset is community or separate property or some portion of each. In the United States, this is very jurisdictional in nature, so you will need to consult the family law code to work through the nuances in your particular jurisdiction, but for now, here are a few common misconceptions that people have:
- Myth: We have always maintained separate finances, so what’s his is his and hers is hers.
The psychological reasons and choices of managing money between a couple sharing a myriad of joint expenses, while still wanting to maintain “independent” accounts, are very real, but when this couple is facing divorce it doesn’t mean that this couple will split the joint account and walk away with what is in their own checking/savings accounts. This can be quite shocking for the saver if both people earn about the same or in the case of inequitable earning levels the one with the higher wage thinks they were earning for themselves only, outside of supporting household expenses, and not for the benefit of the community.
- Myth: The house is in one party’s name so it is their asset.
The way property, car, boat, or real property asset is titled does not indicate that it is separate property. The asset will need to be looked at to determine its nature in a divorce settlement.
- Myth: One person owned the house prior to marriage, but added the spouse on the title and the mortgage, so it is definitely community property.
This asset will need to be looked at for separate property value brought into the marriage. This gets particularly complicated when the house is borrowed against after marriage and/or significantly appreciates or depreciates. In some jurisdictions, the growth on the separate property is community, and in some, it is not. Typically a professional will be brought in to do an analysis when these conditions exist.
- Myth: The retirement is in one spouse’s name and came from their paycheck before going into the joint account so it is not community property.
Similar to a house, this asset will need to be looked at for separate property value if employment started prior to marriage and continued into the marriage. And for the same reasons, this gets particularly complicated when the account is borrowed against after marriage and/or significantly appreciates or depreciates. If there were retirement savings already saved prior to marriage for a job that ended before the date of marriage that will typically be considered separate, but again should be looked at by an expert in the local jurisdiction.
Truth: The community property – devil is in the details.
Do not assume that the way you and your spouse have chosen to manage your day-to-day finances is the way the family law code would divide them up in a divorce. If you are considering marriage, learn what the differences are from the way you and your partner are working together financially. If you are married, learn what the differences are from the way you and your spouse are working together financially. If you are contemplating or in the process of divorce, learn what the differences are from the way you and your spouse are working together financially.
