If you are getting married, you should consider whether you should keep some of your property as separate property after your marry. The property owned by married people is generally classified as separate property or marital property, called community property in some states. The main difference concerns the rights each person has to the property. Usually, your separate property is the property you owned before you married. You should know that the classification of property as separate or marital can change, or you may need or want to be sure that certain property is your separate property.
Taking steps to keep certain property separate is advisable in several scenarios, such as when your new spouse's possible claims and rights regarding your property might interfere with an ongoing family business or when you have children from an earlier marriage. Many of these matters can be addressed in a prenuptial or premarital agreement. Consult an attorney to see if you would benefit from such an agreement.
Ongoing Family Business
If you own part of an existing family business, you and your family may want to keep control of the business among yourself, your parents and your siblings. Therefore, any shares which you own in a closely held family business should remain in your name alone. If you work for the family business while you are married, your spouse could acquire a marital or community property interest in your share of the business. Even if you do not work for the family business, your spouse can acquire a marital interest in the increase in value of your share of the business. You can limit your spouse's claims against your family business in a properly drafted prenuptial agreement. Merely keeping your stock in your name is probably not enough to keep your interest in the business from becoming marital or community property.
Gift or Inheritance
Generally, property acquired by gift or inheritance after marriage is considered separate property. If this property consists of a portion of real property, you might want to keep this as separate property. Otherwise, the property might have to be divided or sold to compensate your spouse in the event of your divorce. Also, you should be aware that any increase in value of the gift or inheritance may be considered marital or community property, subject to division upon your divorce.
Property that is acquired in exchange for separate property usually keeps its character as separate property. For example, if you inherit a car and you exchange the car for a horse, the horse is still your separate property. However, state laws vary on this issue, so you should consult an attorney if you want to exchange property.
Property from a Previous Marriage
You may need to keep property from a previous marriage as separate property in order to pass it on to your children from the previous marriage. For instance, if you own a house which you want one or more of your children to inherit when you die, you will need to keep that as separate property during your new marriage. This can be complicated because the house will become marital or community property if you spend money, which you earn during your new marriage, on maintaining the house. The increase in the value of the house can also be marital property, or if you rent out the house, the income will be marital property. You will need the services of an attorney to draft a prenuptial agreement in order to avoid any mistakes in keeping the property as separate property.
Changing the Classification of Property
You should also know that using your separate property for marital purposes during the marriage can change the classification of the property from separate to marital property. For instance, if you own a house before marriage and that house becomes your marital residence after you get married, the house will probably be considered marital or community property. Also, if you sell your separate property and use the proceeds to buy something that supports the marriage, the new property will probably be considered marital property. Marital or community property is divided between the spouses in the event of a divorce.
Questions for Your Attorney
- What kinds of property should I keep as separate property after I get married?
- How do I keep my interest in an existing family business from becoming marital or community property?
- How do I ensure that my children from a previous marriage will inherit specific property from me?
- Can the way that I use separate property change the classification of the property from separate to marital property?