How Spouses Can Address Separate Property in an Agreement

Around 40% to 42% of first marriages are estimated to end in divorce, according to the Institute for Family Studies. And according to Pew Research Center, the median length of marriages that end in divorce is around 12 years, and 16% of divorces occur within five years of marriage.

Marriage usually implies common responsibilities concerning finances. Still, it does not always mean that all the assets belong to the couple. There is a separate property owned by each couple prior to marriage. An inheritance or any gifts received could also be considered separate property.

When it comes to dividing properties, prenuptial or postnuptial agreements can be used by spouses to specify the rules. With the help of a sole and separate property agreement form, asset ownership can be documented with clear understanding. This clarifies separate properties that are individually owned. Such agreements are useful when one spouse owns a business, has substantial savings, or expects to receive an inheritance.

Understanding the rules and documenting ownership early can help prevent disputes during divorce. Let’s take a look at how spouses can address separate property in an agreement.

What Separate Property Usually Means

Categories remain relatively consistent throughout most regions of the country. In community property states, IRS Publication 555 describes separate property as property owned before marriage, property received by gift or inheritance, and property bought with separate funds.

Marital or community property consists of property that has been acquired during the course of the marriage and is therefore subject to community property or equitable distribution laws of the jurisdiction where it occurs.

According to IRS Publication 555, in some jurisdictions the couple can agree to change the property from separate to community.

Where Agreements Come In

There are two types of agreements through which spouses deal with separate property. The first type of agreement is called a prenuptial agreement, and it is signed before the marriage ceremony. The second type of agreement is known as a postnuptial agreement and is signed in marriage, often after some important financial event.

People try to find the separate and sole property agreement form in order to establish who owns what. California defines separate property as property owned before marriage or acquired during marriage by gift or inheritance. Mixing such assets with joint property makes the matter complicated.

These conditions are usually imposed by the majority of states. They include, among others, the existence of a written agreement signed voluntarily by both parties and, in most cases, an assessment of the proper disclosure of financial information by both individuals.

Some states add further requirements about timing or independent legal advice.

What an Agreement Can Cover

A well-drawn agreement specifies certain property items and indicates how such property should be handled. This includes such things as the marital home, a family business, an investment portfolio, or expected inheritance. The agreement could also cover how to handle any increase in the value of the property, as this is where many disagreements take place.

Debts can be addressed as well. An agreement may state that student loans or business debts incurred by one spouse remain that spouse’s responsibility.

Some couples also include provisions about how income earned during the marriage will be treated, though state law may limit what can be changed.

The Commingling Problem

Even with a signed agreement, separate property may be rendered inseparable as a result of commingling. This can happen by depositing inheritances into joint accounts, applying separate funds towards reducing a joint mortgage, and even placing one’s spouse’s name on the title. It is important to maintain proper records, as doing so increases the chances of successful execution of the agreement.

One way of doing this would be maintaining separate accounts for separate properties and tracing the source of the funds used.

Local Law Shapes the Details

Since laws and regulations governing property vary from one state to another, the nature of an agreement will depend on the state in which the couple resides.

In North Georgia, for example, Ellijay family lawyer Sarah Sevcech leads a practice whose family law work includes prenuptial agreements and property division for clients in Gilmer, Pickens, Fannin, Lumpkin, and Dawson counties. Practices like that see how agreements are drafted and reviewed under their own state’s rules.

Couples who move after signing an agreement may also want to consider how their new state will treat it, since property classification rules can differ significantly from one state to another.

Looking Ahead

Separate property agreement serves as a planning tool that is most effective when both parties understand it, when it takes into account their real financial situation, and when the daily activities of both parties correspond to it. Thinking about these issues beforehand will save a lot of problems for the couple in the future.

Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal advice. Always consult with a qualified attorney to address your specific legal needs and to ensure compliance with local laws.