How opening a bank account can derail your prenup

Nov 21, 2022 | Prenuptial Agreements, Protecting Assets

Prenuptial agreements can be beneficial for many reasons. For starters, it’s a communicative tool that can be a great way to set financial and life goals and expectations. It’s also a way to protect your assets and protect yourself from your partner’s debt. However, all great things come with some caveats. Prenups can be derailed for a number of reasons, but for this article, we’ll discuss what happens when you don’t act in accordance with what you outline in the agreement. For example, if you outline that you want to keep your bank account separate but add your partner as a party to the account, you are effectively sharing the bank account and not keeping it separate as you outlined in your prenup. So, in short, yes, a prenup can be very helpful in the event of a divorce, but there are things you need to do to keep it that way, including acting consistently with what you outlined. 

What is a prenup? 

A prenuptial agreement is a legal, binding contract between two people who are about to get married. The contract typically covers the topics of property, debt, and alimony (i.e., spousal support), and in some states, even infidelity clauses and pet clauses can be included. Prenups are also a document to facilitate communication and transparency. Part of the prenup process is financial disclosure, which requires full transparency of each party’s finances, including credit card statements, all bank accounts, real estate, inheritances, etc. That one pesky credit card bill you’ve been racking up with online shopping expenses? Yeah, that needs to be included. That $100,000 your great-aunt Marge gave you a few years ago that you hid in your secret bank account? Yes, that, too. Hiding any financials puts the prenup at risk of invalidation. 

In addition to the financial disclosure aspect of a prenup, it can also help align both parties’ financial goals and expectations for their life together. For example, let’s say Jane and Joe are going to get married and are getting started on a prenup. In the prenup, they need to decide what property will remain separate and what property will become marital/community property. Jane had a previously owned apartment that she bought years before she even met Joe. Joe assumed Jane would, out of the kindness of her heart, agree to share the property as a marital/community asset. Jane, on the other hand, believes her blood, sweat, and tears to pay off the apartment means she should keep it separate. They talk this out, and, bam, expectations are set, and they’re aligned financially. Joe understands where Jane is coming from and is happy to let Jane keep the apartment separate.

How do prenups work? 

A prenup is a document that you hope you never need to pull out and enforce. But, using a prenup can help put your mind at ease, kinda like insurance would, “marriage insurance,” if you will. When creating a prenup, you must decide what to do with your property, debt, inheritances, gifts, businesses, and more. For example, do you want to keep all of your bank accounts as separate property, but any gifts or inheritances you receive from your family you are okay with sharing with your potential ex-spouse? Or maybe, you want to keep everything separate, bank accounts, real estate, inheritances, the whole shebang! That’s okay, too.

Now, if it ever comes time to actually use the prenup, you will have all of these hard-hitting topics decided for you already. You won’t find yourself arguing over whether that apartment you purchased should be yours because if you put it in your prenup, it will be decided already. You can either privately enforce the prenup between you and your spouse or ask a court to enforce it if there are any issues. Either way, a prenup saves you time in the divorce process by predetermining issues like property, debt, and alimony (i.e., spousal support). 

How opening a bank account can derail your prenup 

Now, let’s get into a sticky situation that you may want to avoid with a prenup. Opening a bank account. Now, it sounds innocent enough, right? You may be thinking, “who doesn’t open a bank account during a marriage? How can this possibly derail my prenup?” Well, there’s a sneaky little thing called a “Joint Tenancy with Rights of Survivorship” clause (a.k.a. JTWROS) that banks might add into the contract’s fine print that you sign when you open a bank account. JTWROS potentially makes that bank account become marital/community property upon opening it, thus, voiding your prenup clause that says that it is separate property. A JTWROS clause says that if you or your spouse dies, the funds in the bank account automatically become the property of the other surviving spouse. 

A who? A JTWROS? Let’s break it down in plain English. When you open a bank account, you often have to go through some paperwork, check off boxes, skim through the legalese, initial provisions, etc. It’s possible that when you open a bank account, there is a JTWROS clause in there somewhere that you signed off on or checked a box for but really had no idea what it meant. If you did, then that means this particular bank account is owned jointly, and each spouse has an equal interest in the bank account; it’s not just one person’s account. If you had intended in your prenup to keep this particular bank account separate, well, you just derailed that clause. It’s not separate; it’s joint, the marital property now because of that JWTROS clause. Why’s that bad? Well, because if it’s no longer considered separate property and now considered marital property, it may be divided up in the event of a divorce.

What does “Joint Tenancy with Rights of Survivorship” mean? 

Let’s do a quick lesson on property law. Joint tenants with a right of survivorship (also known as “JTWROS”) are one way people can own property together. JTWROS typically pops up in real property situations where a couple purchases a house. If you and your spouse are JTWROS on a piece of real estate, then you both have equal interests in the house, and if one of you dies, the real estate generally becomes owned by the surviving spouse automatically. Even if the spouse that died had a Will that said they wanted to pass 50% of the property to their kids. Nope! It goes to the joint tenant. Now, applied to a bank account, the same thing goes. And in the context of a prenup, you can see why if your bank account is owned as JTWROS, it’s no longer separate property. 

How to avoid derailing your prenup 

There are other ways to derail your prenup besides just opening a bank account with JTWROS, such as mixing funds (i.e., commingling). For example, if you own a bank account that is meant to remain separate (as per your prenup), but you and your spouse are both adding and withdrawing funds from it, it may be declared marital/community property and ultimately derail your prenups’ intention of keeping that bank account separate. 

So, how do you avoid derailing a prenup? The first step, stay consistent with what you outlined in the contract. That is, make sure each asset/debt that you intended to keep separate actually gets treated as such. So, if you write in your prenup that you want Bank Account X to be separate property, but then you go and add your spouse’s name to it, and they start adding and withdrawing funds from it, it’s not really separate property anymore, is it? Same thing with real estate. If you intend for a piece of property to remain separate property but then add your spouse to the deed, you’re playing with fire. 

Second, and the subject of this article, make sure none of your property, such as your bank account, is a joint account, and definitely make sure it does not have the JTWROS clause in the fine print of the agreement. If it does, it effectively creates the bank account as a shared, marital piece of property, potentially subject to division in a divorce. You can avoid this by reading the fine print of your bank account agreement and making sure you are the only owner before signing. 

Conclusion 

Don’t let this little pitfall scare you. It’s really not that bad. The property you want to keep separate must actually be treated like separate property. You wouldn’t sign a contract to work as a gardener and then show up working as a chef. The same thing for a prenup, don’t write in your prenup you want to keep your bank account separate and then go sharing the account with your spouse. This is your warning to read the fine print when you open a bank account to avoid this potential issue. 

 

All content provided on this blog is for informational purposes only. HelloPrenup, Inc. (“HelloPrenup”) makes no representations as to the accuracy or completeness of any information on this site. HelloPrenup will not be liable for any errors or omissions in this information nor for the availability of this information. These terms and conditions of use are subject to change at any time and without notice. HelloPrenup provides a platform for contract related self-help. The information provided by HelloPrenup along with the content on our website related to legal matters (“Information”) is provided for your private use and does not constitute legal advice. We do not review any information you provide us for legal accuracy or sufficiency, draw legal conclusions, provide opinions about your selection of forms, or apply the law to the facts of your situation. If you need legal advice for a specific problem, you should consult with a licensed attorney. Neither HelloPrenup nor any information provided by Hello Prenup is a substitute for legal advice from a qualified attorney licensed to practice in an appropriate jurisdiction.

Nicole SheeheyNicole Sheehey is HelloPrenup’s Head of Content. She is an Illinois-licensed attorney. You can read more about us here. Questions? Reach out to Nicole directly at [email protected]

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