Premarital Assets/Debt Question

[jamminmiked]

What is the name of your state (only U.S. law)? GA and MI

I am engaged to be married to a wonderful lady late next year. Due to our careers we are not sure if we will be residing in GA or MI; however, we know it will be one of the two states. We have both been married and divorced 1x before, neither of us has kids, and there won't be any kids on the way (we are in our mid 40s).

I have a substantial 401K, a couple IRAs, a decent montly pension when I retire, and about $100K in cash. She, on the other hand, has virtually no assets, but has a $70K school loan (she has just finished her PhD).

My question/concern has to do with the possibility of divorce having been through it once before**************.she will not sign a prenup, but is OK if I can find a way to make it work without signing a prenup. I fully understand the concept of co-mingling of assets, and by the time we are married I will have left my current job and as such my 401K, IRAs, and pension will no longer be contributed to (and as such no co-mingling). I intend to use a bit of my cash as a down payment towards a new condo for both of us realizing that this money will then be subject to co-mingling division; however, does she have any right to the assets above (or their appreciation) given that I do not intend to add or subtract from them once we get marrried? Likewise, is there any scenario whereby I could become liable for her pre-marital debt even though I had nothing to do with it?

She really is a wonderful lady, and I don't anticipate a divorce; however, having gone through it before (and not expecting one then) I am trying to be realistic. Thanks!

 

[mistoffolees]

What is the name of your state (only U.S. law)? GA and MI

I am engaged to be married to a wonderful lady late next year. Due to our careers we are not sure if we will be residing in GA or MI; however, we know it will be one of the two states. We have both been married and divorced 1x before, neither of us has kids, and there won't be any kids on the way (we are in our mid 40s).

I have a substantial 401K, a couple IRAs, a decent montly pension when I retire, and about $100K in cash. She, on the other hand, has virtually no assets, but has a $70K school loan (she has just finished her PhD).

My question/concern has to do with the possibility of divorce having been through it once before**************.she will not sign a prenup, but is OK if I can find a way to make it work without signing a prenup. I fully understand the concept of co-mingling of assets, and by the time we are married I will have left my current job and as such my 401K, IRAs, and pension will no longer be contributed to (and as such no co-mingling). I intend to use a bit of my cash as a down payment towards a new condo for both of us realizing that this money will then be subject to co-mingling division; however, does she have any right to the assets above (or their appreciation) given that I do not intend to add or subtract from them once we get marrried? Likewise, is there any scenario whereby I could become liable for her pre-marital debt even though I had nothing to do with it?

She really is a wonderful lady, and I don't anticipate a divorce; however, having gone through it before (and not expecting one then) I am trying to be realistic. Thanks!

In general, any separate assets will remain separate as long as you don't comingle assets. HOWEVER, depending on where you live, the judge may have discretion in apportionment of assets. If you have a million dollars in pre-marital assets and she has none, and if you've been married for a while, the judge may decide that the 'fair' thing to do would be to give her a much larger share of the marital assets.

You will not be responsible for her debt unless you take it on. HOWEVER, there are scenarios where it could still hurt you. For example, in my case, the bank wanted my ex on the loan documents even though I was the only income earner. If she had had a poor credit rating, it might have affected our ability to get a mortgage. So if you let your ex default on loans, it could come back to bite you.

In either case, with the amount you have at stake, you should definitely see an attorney. I wouldn't be surprised if the attorney recommends putting some or all of the assets into a trust to help protect them.

 

[LdiJ]

What is the name of your state (only U.S. law)? GA and MI

I am engaged to be married to a wonderful lady late next year. Due to our careers we are not sure if we will be residing in GA or MI; however, we know it will be one of the two states. We have both been married and divorced 1x before, neither of us has kids, and there won't be any kids on the way (we are in our mid 40s).

I have a substantial 401K, a couple IRAs, a decent montly pension when I retire, and about $100K in cash. She, on the other hand, has virtually no assets, but has a $70K school loan (she has just finished her PhD).

My question/concern has to do with the possibility of divorce having been through it once before**************.she will not sign a prenup, but is OK if I can find a way to make it work without signing a prenup. I fully understand the concept of co-mingling of assets, and by the time we are married I will have left my current job and as such my 401K, IRAs, and pension will no longer be contributed to (and as such no co-mingling). I intend to use a bit of my cash as a down payment towards a new condo for both of us realizing that this money will then be subject to co-mingling division; however, does she have any right to the assets above (or their appreciation) given that I do not intend to add or subtract from them once we get marrried? Likewise, is there any scenario whereby I could become liable for her pre-marital debt even though I had nothing to do with it?

She really is a wonderful lady, and I don't anticipate a divorce; however, having gone through it before (and not expecting one then) I am trying to be realistic. Thanks!

I disagree partially with the previous poster. Your premarital assets will definitely be safe as long as you keep them separate. There is no need to put anything into a trust, nor is a prenup necessary. In fact, I would argue against a trust because for it to do any good in this context, you would have to give up control over the assets, and you are far too young to want to do that.

However, any comingled assets or newly earned assets that accrue during the marriage, will be marital property. I also have to assume that since she has justed earned her Phd, that she will not only take care of her student loans, but will also be contributing to the marital assets as well. Therefore I also disagree that any judge would be inclined to give her more than half of the marital assets, should you divorce.

I think that the only possible scenario in which you might have an issue, is if you were to divorce very near to, or during retirement (near or after age 65). If your retirement income was considerably higher than hers at that point, then you might be on the hook for some alimony. However, you would have also been married at least 20 years at that point as well, so you would possibly be on the hook for some alimony, anyway.

 

[mistoffolees]

I disagree partially with the previous poster. Your premarital assets will definitely be safe as long as you keep them separate. There is no need to put anything into a trust, nor is a prenup necessary. In fact, I would argue against a trust because for it to do any good in this context, you would have to give up control over the assets, and you are far too young to want to do that.

That would depend greatly on the trust. There are plenty of trusts where you don't give up control over the assets. But, then, as a financial professional, you already knew that. Right?

As for the rest, you're misreading what I wrote. I already stated that the premarital assets are safe as long as they are not comingled. HOWEVER, if they end up living in an equitable distribution state and he has a huge amount of separate assets in his name, the judge may decide to give her more than the standard 50% of the marital assets. He MIGHT be able to prevent that problem by putting his separate assets into a trust (but needs to see an attorney). So it's not the separate assets he'd be protecting, it's the marital assets.

I don't know how likely that is, but he has enough at stake to discuss it with an attorney.

 

[LdiJ]

That would depend greatly on the trust. There are plenty of trusts where you don't give up control over the assets. But, then, as a financial professional, you already knew that. Right?

Yes, I am well aware of that, however, any trust that still allowed him to control the assets, would basically be a disregarded entity for many tax and legal situations. If the assets are still under his control, they are still reachable by a court of law. That was my point. The only types of trusts that can truly protect assets while the grantor is living, in many situations, particularly marital property division, is a type of trust where the grantor is not in control.

What if someone took marital assets and put them in a trust? Are you thinking that the courts could not break that trust? Of course you are not thinking that. In that case the court could even break the trust if the grantor were not in control. The only way his premarital assets could be in danger is if a judge somehow viewed them as marital, therefore the judge could break a trust. So, they are just as safe outside of a trust as they would be within a trust.

As for the rest, you're misreading what I wrote. I already stated that the premarital assets are safe as long as they are not comingled. HOWEVER, if they end up living in an equitable distribution state and he has a huge amount of separate assets in his name, the judge may decide to give her more than the standard 50% of the marital assets. He MIGHT be able to prevent that problem by putting his separate assets into a trust (but needs to see an attorney). So it's not the separate assets he'd be protecting, it's the marital assets.

I don't know how likely that is, but he has enough at stake to discuss it with an attorney.

The odds of a judge giving her a greater share of the marital assets is quite slim. Slim enough that it would be way overkill to even consider putting his separate assets into a trust. He is also not looking at a situation where the wife will not be an equally contributing partner to the marriage. In fact, if a judge would consider giving her a greater share of the assets, because he had more assets than she did, then the fact that his assets were in a trust wouldn't faze the judge at all.

Trusts are great when you want to protect your assets from being attached by a nursing home, or as estate planning. Or, if you are wealthy enough to want to provide a controlled income to a child or grandchild.

However, I have seen too many people cause themselves all kinds of financial hassles by putting assets into a trust unnecessarily, or way too early in their lives. I see absolutely no benefit to a trust for this poster, therefore I am going to advise against it, even if an attorney would think it was a good idea.

 

[jamminmiked]

Thank you both for your feedback, and one last question. Obviously my separate cash assets will be earning interest/dividends (CDs and stocks), and as such it will be reflected as income when we file our income taxes (even though the assets are not co-mingled). Does this in any way give her access to it if a divorce were to happen (i.e. claiming that she contributed by helping to pay for the result of its increase, and as such get a cut of it)?

I find it hard to believe that it would, but I am looking at every angle here**************.

 

[LdiJ]

Thank you both for your feedback, and one last question. Obviously my separate cash assets will be earning interest/dividends (CDs and stocks), and as such it will be reflected as income when we file our income taxes (even though the assets are not co-mingled). Does this in any way give her access to it if a divorce were to happen (i.e. claiming that she contributed by helping to pay for the result of its increase, and as such get a cut of it)?

I find it hard to believe that it would, but I am looking at every angle here**************.

As long as you do not put marital funds into the account, you are fine. Its irrelevant that the income from the separate assets gets included on a joint return. Don't fret about that.

 

[StanleyCup]

As long as you do not put marital funds into the account

To come at this from another angle, let me see if I understand the law here. Let's say person A has a checking account with a balance of $100,000 at the time he marries Person B. Sometime after marriage, person A does the following:

1. deposits marital funds into the account
2. writes a check out of the account to maintain a marital asset (i.e. make a car payment on a car purchased after the marriage)

Maybe just one of the above actions wouldn't make the entire account marital property. However, if marital proceeds are added to the bank account or if proceeds from the account are paid out for regular living expenses, isn't it more likely that the non-marital value will diminish since it is impossible to determine which proceeds came out first - the marital proceeds or the non-marital proceeds. In effect, could the entire account be considered co-mingles and become a marital asset?

As a follow-up to this, would it not be wise to put this account in a trust prior to the marriage, if for no other reason than to prevent the accidental co-mingling of it's funds?

 

[LdiJ]

To come at this from another angle, let me see if I understand the law here. Let's say person A has a checking account with a balance of $100,000 at the time he marries Person B. Sometime after marriage, person A does the following:

1. deposits marital funds into the account
2. writes a check out of the account to maintain a marital asset (i.e. make a car payment on a car purchased after the marriage)

Maybe just one of the above actions wouldn't make the entire account marital property. However, if marital proceeds are added to the bank account or if proceeds from the account are paid out for regular living expenses, isn't it more likely that the non-marital value will diminish since it is impossible to determine which proceeds came out first - the marital proceeds or the non-marital proceeds. In effect, could the entire account be considered co-mingles and become a marital asset?

As a follow-up to this, would it not be wise to put this account in a trust prior to the marriage, if for no other reason than to prevent the accidental co-mingling of it's funds?

While your questions are very much "on topic", this forum prefers that you start your own thread to ask your own questions.

Just copy and paste this post into a thread of your own.

 

[mistoffolees]

As long as you do not put marital funds into the account, you are fine. Its irrelevant that the income from the separate assets gets included on a joint return. Don't fret about that.

Ignoring, of course, the statements I already made. In some states, judges can consider separate assets when they divide the marital property. The OP's ex could get a larger portion of the marital assets if the OP has a substantial amount of separate property in states where the judge has discretion to vary from 50:50.