Married With Separate Assets

Having represented hundreds of married couples, we have seen plenty of them present to us for a divorce with the proverbial separate bank accounts.  It seems there is a correlation between a separate bank account and a separate heart.

Money, as with sex and religion [and we would hasten to add, children], is one of the primary things that couples argue about and get divorced over.  Money, as the bible tells us, is indeed the root of all evil.

Even so, if evil, money is a necessary evil.  Here are some potential problems with couples that maintain separate bank accounts and assets:

1. Mistakenly separate property.  If a couple gets married and brings their separate accounts to the marriage, even without overly co-mingling the assets by creating a joint account, such property can eventually get co-mingled over time and become part of the marital estate.  An example of this would include where one spouse uses the funds from a separately titled account to pay marital bills.  When you enter into a marriage and desire to keep your separate property separate, you have to be certain to segregate the property.  Even when you do, us lawyers love to find ways to "invade" the separate property of the moneyed spouse and haul it into the marital estate.  If you are getting married but insisting on the maintenance of separate property, then you should consider executing a prenuptial agreement.
2. Separate property has greater exposure to creditors.  When you are sued by creditors or file for bankruptcy, joint assets are unavailable to satisfy the judgment creditor and the bankruptcy trustee.  Now be careful here; you cannot just go plunging your money into a joint account to avoid creditors.  That would be deemed a fraudulent transfer made to avoid creditors and such assets may be used to satisfy the creditors.
3. Administrative complication upon death.  If a married couple maintains separate checking accounts, then some administrative issues will arise in the event that a spouse dies.  For example, the surviving spouse may need to secure a death certificate prior to accessing the funds in the account, assuming that she was named as the power of attorney.  This is not inherently difficult to do but, do you want to be doing it amid the funeral and burial of your loved one.
4. Separate accounts do not encourage financial communication.  Finally, maintaining separate accounts does not foster open communication between spouses about their finances.  The other spouse is left to guess as to the net worth of the individual, the net worth of the marital estate.  One spouse may never know about any savings cushion unless asked.  The overall financial picture of the couple remains hidden from full view.  When it comes to finances, this is usually not a good thing in a marriage.

Maintaining separate assets is a tactic that most often comes from old habits dying hard.  We find that the older a couple is when they get married, the more likely one or both partners will maintain that separate checking account, or keep that one asset in their sole name, almost like a symbolic insurance policy.  But we have to ask, insurance for what.

Going "all in" with joint accounts and jointly titled assets is the better plan for the long term marriage.  This is especially true if the couple executes estate planning documents shortly after their nuptials.

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Same-Sex Divorce

With all the attention that same-sex marriage has garnered over the past few years, could the focus on same-sex divorce be far behind?  The divorce cases, with their attendant issues, are just beginning to manifest.

The problem for many same-sex married couples that hit the skids is that, when they move to states that do not recognize their same-sex marriage, they cannot get divorced in that state.  At that point, they face a series of undesirable options: moving to one of the 14 states that recognize same-sex marriage to secure a divorce, staying in an emotionally unhealthy relationship, or informally deconstructing their marital estate and family.

Recently, we spotted an article in the NYT featuring just this problem for a couple in Mississippi.  The couple was married in California -a state that, through much blood and sweat, recognizes same-sex marriage post-Hollingsworth.  While the Sunshine State allows non-residents to prosecute a divorce by waiving the six-month residency requirement, the couple would not likely have the important issues of custody and property division resolved in their judgment of divorce; they wind-up with a piece of paper but not any peace of mind.

One option they apparently missed was the preparation and execution of a prenuptial agreement.  These agreements operate as binding contracts which can then be enforced in many states.  Whether such a contract would have been enforceable in Mississippi, however, remains to be seen.

These and similar issues can be expected to surface more frequently as same-sex marriages become more common and, as such marriages inevitably fail.

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Student Loans and Divorce

There are two ways we have seen student loan debt affect divorce proceedings.  One scenario is where the divorcing spouse, usually a newly-minted professional, has accrued a significant debt balance well into the six-figures; as much as $200,000 in the case of a medical degree.

The other is where the student children of a divorcing couple have accrued the debt and one or both of the parents has co-signed on the loan.  These days, there are no job guarantees whatsoever for the graduates, regardless of their GPA or skill set.

When an engaged couple with student loan debt begins to plan for marriage, those plans often include addressing one or both partners' student loan debt.  If either spouse has significant debt, a prenuptial agreement should be considered.

A prenuptial agreement is a contract entered into by both partners, each with independent legal counsel and review, following a full-disclosure of all assets and liabilities.  This agreement is triggered by the death of either party or a divorce.

One of the primary considerations in a situation featuring significant student loan balances, is whether marital funds will be expended to pay back a student loan.  Another important factor for consideration is whether one spouse supports the other while a professional degree is earned during the marriage but also where that degree is financed through student loans.

A prenuptial agreement can address these issues.  Both existing and inchoate debts can be covered within the scope of the agreement.

In the other scenario arising with some frequency these days, a spouse co-signs a student loan for one of the couple's children.  If the student is unable to begin making payments after the grace period expires, the co-signing spouse becomes liable and it is a marital debt issue in the divorce.

Generally, the student loan debts of a couple's emancipated children are not marital debts within a divorce proceeding.  Only when a parent co-signs does this become problematic, especially when the co-signing parent is not the primary bread-winner.  Who pays back that debt if the student cannot?

Before a parent co-signs on a student loan, some thought should be given to the overall health of the marriage and whether it is wise to complicate the marital estate with such contingent liabilities.

If you are struggling with such issues, our law firm offers a free consultation that can provide you with some guidance with these tough decisions.

Side Note:  Here is a link to a post from the Law Blogger from last summer on a related student loan issue.

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Shariah Law and Divorce

In an unpublished decision released in the middle of last month, the Michigan Court of Appeals found fault with the Wayne County Family Court in a divorce case that touched on the application of Shariah law.

Specifically, the Hammoud case involved the imposition of spousal support in a realaitively short-term marriage. The Court of Appeals was troubled that the family court conditioned the duration of the "open ended" support on wife obtaining an "Islamic divorce" decree, noting:

As structured by the trial court, plaintiff has no incentive to become self-sufficient or to vigorously pursue an Islamic divorce as she is assured an ongoing income ad infinitum.  The trial court also failed to address or seek further clarification of plaintiff’s contention that she was in possession of a document that would permit others to assist or assure her the attainment of an Islamic divorce without defendant’s consent.  Plaintiff indicated that an agreement existed that would permit her brother and brother-in-law to authorize the Islamic divorce, potentially rendering it within plaintiff’s control to prolong her receipt of spousal support.

The implication, as held by the Court of Appeals, was that the family court pressured the husband into agreeing to an Islamic divorce when, under the establishment clause, it had no power to do so.

The Court of Appeals was not impressed with the lower court, the litigants, or their attorneys.  The case also featured an [untranslated] Arabic language prenuptial agreement proffered by husband to support his position that his wife agreed to forgo any spousal support.

The Hammoud case received national attention with a reference in Law Professor Eugene Volokh's law blog; the Volokh Conspiracy.

We here at the Law Blogger agree that family court is not the place for the implication or enforcement of religious laws; that is for the house of worship and is a private matter between the litigants.

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Valid Prenuptial Agreements Require Full Asset Disclosure

Prenuptial agreements, contracts executed in the anticipation of a marriage, have long been validated in Michigan courts.  Generally, there are two contingencies covered in a typical prenuptial agreement: a) the divorce of the contracting parties; and b) the death of one of the parties.

A primary requirement to enforcing a prenuptial agreement is the "special duty" of full disclosure of all assets by both contracting parties.  This requirement was recently examined in a key (but unpublished) decision of the Michigan Court of Appeals.

The case, In the Matter of Kenneth Waller, originated right here in the Oakland County Probate Court.  The case illustrates the risk of executing a "do-it-yourself" prenuptial agreement.

The contract at issue in the Waller case waived the Wife's interest in a statutory share of her husband's estate in favor of the Husband's adult children.  The Wife challenged her Husband's estate at his death, despite her execution of the antenuptial agreement.

The contract was upheld by the probate court judge.  In reversing the probate court, the Court of Appeals focused on the asset disclosure and lack of evidence that any proper disclosure had been made by either party:

Accordingly, fair disclosure is required  under statute and caselaw in the context of
determining whether a prenuptial agreement can be deemed valid and enforceable.  The record
indicates that there was no formal disclosure of assets by either decedent or Waller at the time of
or before the execution of the  prenuptial agreement, such as through the presentation or
exchange of written asset lists or through a verbal communication or declaration electronically
recorded so as to preserve proof of disclosure.  The prenuptial agreement itself did not contain an itemization of assets and values,  nor did it indicate that disclosure of assets had taken place.
Indeed, there is no evidence of even an informal, off-the-cuff discussion between Waller and
decedent regarding the nature, extent, and value of each other’s assets prior to the execution of
the agreement.  The probate court essentially found that Waller was sufficiently familiar with the
assets held by decedent, making it unnecessary for decedent to redundantly disclose his assets to Waller before the agreement was signed, where  the assets had already been effectively
“disclosed” to her simply through the evolution of their relationship in which familiarity with
each other’s property naturally occurred.  We agree with the principle that if a party challenging
a prenuptial agreement was fully aware of the other party’s assets and their value at the time of
execution, an argument that there was a failure to fairly and formally disclose assets should fail;
the purpose of a disclosure is to make a party  aware of what he or she may be giving up in
signing a prenuptial agreement.

The Court of Appeals held that under such a record, the (rebuttable) presumption of non-disclosure should have been applied to invalidate the prenuptial agreement in that case.

Also, the Court of Appeals placed significance on the lack of a financial statement or schedule of assets.  These are typically attached to the antenuptial agreement.  This way, there can be no claim, as in the Waller case, of a failure to disclose, or a triggering of the presumption of nondisclosure.

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