You should have a general understanding of what the law would provide if you did not have a prenuptial agreement. This article is here to help you with that. The most important issue for most people entering into a prenup is how their property will be divided – both property brought into the marriage, and property acquired during the marriage.
Depending on how long you and your spouse were married, the property you acquired while you were together might amount to some significant value. Dividing it between you doesn’t have to be difficult, but neither is it quite as simple as many people believe. You cannot saw the house in half or retain half the car. Envision a big pot instead. Now place all your marital property into it. If you take out a car worth $20,000 to keep for your own, your ex is entitled to something else from the pot, maybe a couple of items equal in value to the $20,000 you now have in your corner.
That’s the simplified version. The law is full of corkscrews and exceptions. First, depending on where you live, a court might not award you 50 percent of that pot of marital property. Equal division is the norm in the nine community-property states: Arizona, California, New Mexico, Wisconsin, Louisiana, Washington, Idaho, Nevada and Texas. But the remaining 41 states divide property in a divorce according to the principle of equitable distribution. This means that if a judge is forced to make the decision because you and your spouse can’t reach a marital settlement agreement, he’s going to divide your property in a way that seems fair to him after considering all the factors of your marriage. This might not work out to a 50-50 split.
Another complicating issue is that not everything you and your ex own may be subject to division when you divorce. The law draws a line between separate and marital property, and separate property is immune from distribution. Marital property is anything you purchased or acquired while you were married, regardless of whose name an asset is titled in. This is what goes in that marital pot for distribution. Separate property is anything you inherited while you were married or that was a gift given solely to you, assuming it wasn’t your spouse who gave it to you. In most states, gifts from one spouse to the other are considered marital property. Gifts made to only one of you are separate property if you can prove they weren’t intended for both.
If you owned a certain asset before you married, this is typically your separate property and you get to keep it when you divorce. But changing the status of separate property is surprisingly easy to do. It can effectively happen by accident. Consider this scenario:
You owned your own home before you tied the knot. Your new spouse doesn’t want to live there, so you rent it out and the two of you purchase a new residence together after the wedding. The new property is marital property, no doubt about that. As for your premarital house, that’s safe from distribution in divorce — unless you use money earned while you’re married to make a mortgage payment, to pay the taxes or to fund repairs or maintenance. Now you’ve commingled the asset and your spouse has a right to make a claim for her share of it. But what if you never use marital money on its upkeep? Maybe the rent you’re charging your tenant covers all the costs of maintaining the property. You can present an argument to the court that the property is therefore yours and yours alone, and if you have experienced legal representation on your side, you’ll probably win. But if your spouse took paint brush in hand at some point to help you maintain the residence, this can constitute commingling in some states. Other states consider that any passive increase in the property’s value over the years is marital property too. And if you and your spouse decide to live there, you may have muddied the waters. Now she might make a claim that it’s the marital home and she has a right to a share of its value.
Property division in a divorce isn’t black and white, but it doesn’t have to be mind-boggling either. All these rules can be set aside if you and your spouse can reach an agreement on your own or with the help of lawyers. The court will honor your wishes and let you divide your property up as you see fit. The moral of the story is that it’s usually better to negotiate than to leave it up to a judge.
In the context of a prenuptial agreement, the best way to envision this is using three pots: one pot representing what is your, one pot representing what is your spouse’s , and one pot representing what belongs to both of you. Decide what you want to go into each pot.