Strategic Financial Planning

March 21, 2011

Planning for weddings – and finances

With the spring wedding season approaching, many couples are busy planning for the big day. Part of the planning that may be left out is financial planning as a couple. Because the divorce rate is still close to 50 percent, leaving out financial planning can cause heartaches down the road.

Part of the planning may be a pre-marital contract. This makes sense not only to show who owns what, but can protect either spouse’s business from being caught in a divorce. It also helps each other avoid assuming debts of the other. Overall, the pre-marital contract can prevent a bad divorce experience.

In most states, what an individual brings into the marriage can remain his or her separate property, as long as it is not mixed with shared property, such as a joint checking or investment account. Also, property inherited or gifted during a marriage to one spouse may remain that spouse’s separate property.

While property owned at the time of marriage can be kept separate, property obtained or earned during a marriage may not be separate. For example, if the husband buys a car in his name, legally it is likely half the wife’s. The debt can be half the wife’s too. That’s because it is seen as being purchased with income earned during a marriage. This can even be the case for growth of separate property. If the wife has an IRA at the time of marriage and it grows by $50,000, then $25,000 of the growth can be the husband’s because it was earned while married.

If both spouses agree to separate property, it is important to speak to an attorney about a written agreement and proof that the property is separate. If a marriage ends in divorce, the court is going to want proof it is separate property.

In some states like Texas, marriage is not the only act that can create joint property. Just being in a relationship where two individuals are holding themselves out as husband and wife and are living together may trigger a ruling of joint property by a court for property obtained during this relationship. This could be detrimental to an individual who uses his or her money for a major purchase only to see half of it taken away when the relationship ends.

If this is the case in your state, a co-habitation agreement may be a good idea. This is like a pre-marital agreement for singles. Any individual with substantial wealth or property should consult an attorney before entering a serious relationship.

Filed under: FYI For Your Finances — strategicfp @ 9:12 pm

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