It’s common today for couples to have separate financial accounts. This may be done for convenience, financial independence or other reasons. Most people think that by depositing their income into a separate account, their spouse has no rights to those funds, but that isn’t true. Generally, during marriage, both spouses have an equal right to each other’s income, regardless of where that money is deposited.
Income as Marital vs Separate Property
During marriage and the divorce process, spouses may own marital or separate property. Marital property is any property acquired after the parties’ wedding date up to the date a divorce action is filed or an antenuptial agreement is signed. It is divided fairly between the parties in divorce as provided under the law of equitable distribution. Separate property is any property acquired before the parties’ wedding date or through inheritance or a provable gift made directly to a party during the marriage and remains titled solely in that party’s name. It is not split in divorce unless it is converted into marital property.
Marriage is an economic partnership, and each spouse has the right to financial support from the other while married. Therefore, income earned during marriage is considered “marital property” and remains so, regardless of whether the money is kept in separate accounts, with a few exceptions.
However, once a divorce action is filed, each spouse’s income becomes his or her “separate property,” even though the marriage is still intact legally. This income is not divided in divorce, although both sides may still be required to pay certain joint expenses and spousal support in accordance with the automatic orders rule.
Prenuptial and Post-Nuptial Agreements as Exceptions
Couples may enter into a prenuptial agreement before marriage or a post-nuptial agreement after marriage that states that each spouse’s income shall remain his or her separate property. However, this must be explicitly stated in the agreement. Further, any separate income deposited into a joint account or used to pay for joint expenses becomes marital property.
Trusts as an Exception
Generally, trusts are considered the separate property of the spouse named as beneficiary. This is true regardless of whether the trust is set up before or after marriage. However, when it is created during a marriage, the non-beneficiary spouse must raise the question of whether any marital assets have been put into the trust.
While there are legitimate reasons for a spouse to set up a trust during marriage, sometimes it is done in order to improperly shield assets from equitable distribution. Often, the non-beneficiary spouse is not aware of the trust or thinks the money came from another source, such as a family member.
In a divorce action, the trust and the assets in it should be carefully examined to determine whether it contains any assets that are marital in nature. The non-beneficiary spouse has the right to trace the source of the assets with the help of a forensic accountant who can utilize various accounting and investigative techniques to examine where the funds in the trust came from.
If it is determined that the trust contains marital property, a spouse can go to court to obtain his or her fair share of those marital assets. The trust can be broken to remove the marital property contained therein or the value can be used as an offset against other assets being divided.
If you are considering a divorce and your spouse has money or assets in a separate account or trust, please contact us to help ensure your rights are protected.
