How do I keep separate property separate during marriage?
California is a community property state. This means state law defines property as either community or separate. Community property is that owned by both spouses and subject to division during divorce. The courts generally split this property equally between the parties. It defines separate property as that owned solely by an individual as opposed to the married couple. Examples can include assets owned prior to the marriage, bought with separate property, and gifts or inheritance.
There are many different reasons a couple may choose to keep certain property separate and having these discussions can help to build a stronger relationship. Common examples of reasons to keep property separate include:
- Previous wealth. People are waiting longer to get married. This means that in addition to generational wealth, more and more individuals are entering marriage with their own accumulated wealth.
- Business interests. Perhaps one party has a private medical practice, a tech-start up, or other successful business enterprise prior to the marriage. It is not uncommon to want to put this professional entity in a category separate from personal, marital assets.
- Children. Those who have children from a previous marriage or relationship may want to ensure that funds are set aside for their children.
Couples can maintain separate property during marriage. When done correctly, this means that in the event of a divorce the separate property remains separate, retained by the owning party. Three legal tools that can help to achieve this goal include the following.
#1: Premarital agreement
A premarital or prenuptial agreement is a legal contract drafted and signed by both parties prior to the marriage. It is wise to avoid boilerplate, fill-in-the-blank documents to meet this need. Although these documents could serve as a starting point for a conversation about prenuptial agreements, it is wise to negotiate and tailor the contract to your specific situation. This increases the likelihood that the agreement will withstand a legal challenge.
There are certain requirements in order to have a valid agreement. For example, both parties must enter the agreement voluntarily or it is void. The state also requires fair, reasonable, and full financial disclosure when drafting these documents.
#2: Postnuptial agreement
A postnuptial agreement is much like a prenuptial agreement and can achieve similar goals. The difference is that a postnuptial agreement is drafted during the marriage.
#3: Estate planning tools
A trust is a legal tool that a party can use to house separate property. This can provide a way to better ensure high value property remains separate from marital funds and reduce the risk of an argument that the funds were mixed, or commingled, with marital property. If comingled with martial property, the courts generally no longer consider the separate property as separate. Instead, it is viewed by the courts as marital property.
These are just a few of the ways to better ensure separate property remains separate during the marriage. An attorney experienced in this specific area of family law can review these and other options and discuss what may be best to meet your goals.