Everyone knows that marriage and divorce can mean big changes in your life. What you may not realize however, is that there can also be some major financial impacts on both parties.
In the event of a divorce, many of these financial aspects come into play. Since both parties are entitled to a share in the community property acquired, when ending a marriage a court must decide who gets what so that each spouse walks away with an equitable distribution. Debts must also be divided up as well as any future income, retirement benefits or otherwise expected financial events. Should one spouse make considerably more than the other, there may also be the possibility of alimony.
For this reason, many couples come to an agreement regarding their various assets – what’s to remain separate property and what’s not. This document, called a prenuptial agreement, allows couples to outline the financial aspect of their relationship before the marriage ever takes place.
For more on the financial aspects of marriage and divorce, read this book about protecting your financial security when getting a divorce and this book about divorce and money.
With the formation of a legal marriage comes a number of benefits, including a whole slew of rights and entitlements as the legal “spouse”. But marriage also changes your rights as a property owner as well as your obligations toward debt.
Many states have community property laws that entitle each spouse to 50% of property acquired during the marriage. This “property” includes the house, the cars, furniture and even any money earned during that time. As a spouse, you also have an ownership in your partner’s retirement portfolio, such as 401(k) or IRA. There are exceptions to this rule of course, such as inheritances and gifts. This type of asset remains separate property, even in the event that it was acquired during the marriage.
Separate property can become community property if the couple commingles or mixes the two. Once the paper trail distinguishing the separate property from the community pool is lost, the separate property is “separate” no more.
Even those states without a community property provision still recognize the co-ownership existing between spouses and this ownership extends to debts as well. That means that once married, you are equally liable for any debts your spouse creates. Debts created prior to the marriage or those created after a marriage is dissolved do not fall in this category.
Spouses can also file a joint tax return and are equally liable if the return is incorrect and likewise, equally responsible for any taxesthat are owed.
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