Marriage is a legally-binding union between two people. When you get married, you agree to be together for better or worse, including financial matters. While married couples need to work hand in hand to manage their finances, they also have to maintain certain boundaries for protecting their assets.
Many married couples find themselves in heated arguments about money, often due to a lack of understanding and communication about each spouse’s financial obligations. So, it is crucial to be aware of the following laws to help keep finances balanced throughout your marriage.
Community Property Law
In most states, community property law dictates that all assets and debts acquired by either spouse during the marriage be joint property. It means that each spouse has an equal say in managing these assets and can be held liable for any debts incurred.
For instance, if one spouse buys a car during the marriage, both spouses are considered to own the vehicle. If the bank later repossesses a vehicle due to unpaid debt, both spouses will be responsible for the debt.
Unless there is a prenuptial agreement that dictates otherwise, community property law will typically apply to all assets and debts acquired during the marriage.
Separate Property Law
Separate property law is another common law that applies to married couples. This law dictates that any assets or debts acquired before the marriage, or those gifted or inherited by one spouse, are considered separate property.
So, the spouse who owns a separate property is solely liable for any debts incurred on that property and has complete control over how they can manage it. But, if the spouse uses the property to acquire an asset or obligation during the marriage, it will become joint property.
However, this law has some exceptions, such as if the property benefits both spouses. As a result, married couples need to clearly understand separate and community property laws to avoid any confusion.
If you are married and have credit card debt, you may be able to assign the debt to your spouse without their consent. This approach is known as a debt assignment and allows your spouse to be responsible for the debt.
It can be a helpful strategy if you are struggling to make payments for the obligations or want your spouse to take over the responsibility for the debt. However, it’s important to note that debt assignments are not always legally binding, and a judge can overturn this rule.
The process of assigning debt is relatively simple. The spouse who wants to transfer the debt needs to provide a letter of assignment to the creditor, specifying the spouse’s name who will be responsible for the debt. In that case, the creditor will then update their records to reflect the newly assigned debtor.
Joint and Several Liability
If you and your spouse are both liable for a debt, you are jointly and severally liable. It means that you can be held responsible for the entire debt and share equal responsibility.
It also means that the creditor can pursue either of you to collect the debt, even if the other spouse has already paid it off. So, if one spouse stops making payments, the other will be held liable for the entire debt.
While married couples are jointly liable for any debts incurred during the marriage, they can also take steps to protect their assets from creditors. One way to do this is by setting up an asset protection trust. It will shield the trust assets from creditors in a legal dispute.
One of the best ways to protect your finances during a marriage is to execute a prenuptial agreement. This document outlines how assets and debts get divided in the event of a dissolution. It can also include provisions for spousal support and child custody.
Prenuptial agreements are not just for the wealthy. Anyone who is considering marriage should consider executing a prenuptial agreement. It can help to avoid any potential disagreements down the road about money matters.
The court honors prenuptial agreements as they are legally binding contracts. So, if you and your spouse decide to end your marriage, your divorce attorneys will enforce the prenuptial agreement and keep your finances in check.
While several regulations can help govern married couples’ finances, it is essential to be aware of these laws and how they may impact you. By understanding the basics of community property law, separate property law, debt assignment, and prenuptial agreement, you can take steps to protect your finances during the marriage.
You can avoid any potential disputes and ensure that your money matters are well-handled to work best for you and your spouse.