Marital Property

Marital Property (also known as 'marital assets' or 'community property' in some jurisdictions) refers to nearly all wealth, assets, and debts that a couple acquires during their marriage. Think of it as the financial “pot” that both partners contribute to and build together, regardless of whose name is on the paycheck or the account. This concept is the polar opposite of “separate property,” which includes assets owned by either individual before the wedding, as well as specific gifts or inheritances received by one spouse during the marriage. Understanding this distinction is not just for divorce lawyers; it's a cornerstone of sound personal financial planning for any investor who is married or considering marriage. The rules governing marital property can profoundly impact how your investment portfolio is managed, divided in a divorce, and passed on to your heirs, making it a critical, if unromantic, aspect of wealth management.

For investors, marriage is more than a personal union; it’s a financial one. Your meticulously built portfolio, retirement accounts, and other investments are often viewed through the lens of marital property law, with significant consequences in two major life events: divorce and death.

When a marriage ends, the accumulated marital property must be divided. How this division happens depends almost entirely on where you live, as states generally follow one of two systems.

In states like California, Texas, and Arizona, the law takes a simple, if blunt, approach. Marital property is generally considered to be owned 50/50 by both spouses. Upon divorce, these assets are typically split right down the middle.

• Example: If you used your salary (marital income) to purchase $100,000 worth of stock in a brokerage account during your marriage, that stock is community property. In a divorce, your spouse is generally entitled to $50,000 of its value, even if the account is only in your name.

Most states follow this model, where “equitable” means fair, not necessarily equal. A judge considers various factors to arrive at a fair division, which might be 50/50, 60/40, or another split. Factors include:

• The length of the marriage.
• Each spouse's income and earning potential.
• The contribution of a non-wage-earning spouse (e.g., as a homemaker).
• The financial situation of each spouse after the divorce.

In this system, a well-reasoned argument about contributions and future needs can significantly influence how your investment portfolio is divided.

Marital property laws also dictate how assets are transferred upon a spouse's death. For assets owned jointly, such as a brokerage account titled as Joint Tenants with Rights of Survivorship (JTWROS), the surviving spouse automatically inherits the entire account, bypassing the probate process. However, for assets titled individually, the rules of marital property and state inheritance laws will determine how they are distributed, which may or may not align with the deceased's wishes if a proper will or trust is not in place.

Knowing which assets are on the “marital” side of the ledger is crucial for any investor.

• Income & Savings: Salaries, bonuses, and any savings derived from them during the marriage.
• Investment Accounts: Stocks, bonds, and mutual funds purchased with marital funds. This includes contributions to retirement accounts like a 401(k) or an IRA made during the marriage.
• Appreciation: The growth in value of marital assets. If a stock purchased with marital funds doubles in value, that gain is also marital property.
• Real Estate: The family home or other properties purchased during the marriage.
• Pensions: The portion of a pension or retirement plan earned during the years of the marriage.

• Pre-Marital Assets: Any investment or property you owned before saying “I do.”
• Gifts & Inheritances: Assets given specifically to one spouse, even during the marriage.
• Legal Settlements: Payouts from personal injury lawsuits are often considered separate.

A critical pitfall to avoid is commingling. This happens when you mix separate property with marital property. For example, if you deposit a $50,000 inheritance (separate property) into a joint checking account and then use it for joint investments, you may have unintentionally converted that inheritance into marital property.

Protecting and managing your assets within a marriage requires proactive planning.

• Know Your State's Laws: The first step is to understand whether you live in a community property or equitable distribution state, as this forms the foundation of your financial planning.
• Consider a Prenuptial Agreement: Often viewed negatively, a “prenup” (or a postnuptial agreement, signed after marriage) is simply a financial tool. It's a private contract that allows a couple to define for themselves what will be treated as marital versus separate property, providing clarity and overriding the state's default rules.
• Keep Meticulous Records: If you want to keep separate property separate, documentation is your best friend. Keep statements showing the account balance before marriage or documents proving an inheritance. Create a clear paper trail to prevent any claims of commingling.
• Title Assets Thoughtfully: The name on an account matters. Holding pre-marital assets in an individual account rather than a joint one can help preserve their separate character. Consult with an advisor to understand the implications of different titling options.
• Consult Professionals: Marital property law is a complex intersection of finance and law. A financial advisor and an estate planning attorney can provide guidance tailored to your specific situation, ensuring your investment strategy aligns with your long-term personal and financial goals.