Did you and your honey go half-sies on a house years before getting married? Maybe you put down 60%, and they put down 40%. How do you handle this type of thing in a prenup? What happens to this type of property without a prenup? Great questions! The first thing to understand is that state law dictates this area and can vary from state to state. With that said, there are some underlying principles regarding property purchased before the marriage that we will discuss below that may be true in various states.
What is a prenuptial agreement?
A prenuptial agreement, a.k.a. a prenup, is a legal contract that couples sign before marriage to establish the rights and responsibilities of each party in the event of separation or divorce. The purpose of a prenup is to clarify each spouse’s financial obligations and protect their assets in case the marriage doesn’t work out.
Why include a division of property clause in a prenup?
A division of property clause in a prenup is an important clause because it outlines how the marital/community assets will be divided in case of divorce. Without a prenup, the division of property will be subject to state law, which may not reflect the couple’s intentions. By including a division of property clause in a prenup, the couple can ensure that their assets will be distributed according to their wishes rather than relying on state law.
What is joint property (aka property you own together), and how is it treated without a prenup?
Let’s talk about state default law and joint property that is owned by both of you prior to marriage.
Property can include real estate, bank accounts, investments, and personal property such as furniture and vehicles. Joint property is sometimes known as marital property or community property, depending on the state’s laws.
Keep in mind there is joint property purchased before the marriage, and then there is joint property purchased during the marriage. These are two very different things, and it’s important to understand the difference.
Joint property purchased before the marriage
Depending on what state you’re in, joint property purchased before the marriage may be considered separate property with each person retaining separate property interests, or it may be considered marital and split according to a number of factors.
For example, in some states, if Spouse A puts down $600,000 and Spouse B puts down $400,000 for a $1,000,000 house before getting married, then Spouse A owns a 60% interest, and Spouse B owns a 40% interest in the house. This means that generally (depending on state laws and without other factors at play), it will be divided up according to the separate property interest owned (a.k.a. 60/40).
On the other hand, in other states, if Spouse A put down $600,000 and Spouse B put down $400,000 for a $1,000,000 house before getting married, the court would treat this as marital property and split it up according to a list of state factors. The court MAY consider the contributions of each spouse but may also consider other things like the age and health of each spouse, the length of the marriage, and more.
Joint property purchased during the marriage
Joint property purchased during the marriage is generally considered marital/community property and is divided up according to state laws unless you have a prenup. In community property states, this is typically an automatic 50/50 split (without any other exceptions applying unless you have a prenup).
In equitable distribution states, this may be 60/40, 70/30, 50/50, or any combination of split, depending on the circumstances. A court in an equitable distribution state may look at the contributions of each spouse when making this determination, but they may also look at other factors, such as the length of the marriage.
Word to the wise
Sometimes property that is considered separate property in any state can become joint property (i.e., marital or community property) through things like spousal contributions to the property or commingling. That means that your 60% separate interest in the house that you bought prior to marriage can be diminished based on certain factors, like spousal contribution to the house.
For example, let’s say you purchased a home prior to marriage and put down 70%, and your spouse put down 30%. If that spouse contributed to renovations and upkeep, then at the time of the divorce, a judge could say that 30% is now 50%.
How is joint property (owned before marriage) divided in a prenup?
In a prenup, the division of joint property owned before marriage can be specified in several ways.
Equally: One common method is to split the marital/community assets evenly between the spouses. That is, a 50/50 split regardless of the amount of money contributed. For example, this may be pertinent for a couple who went 60/40 on the marital home. Maybe the person who went 60 is okay with splitting 50/50 since they will be living in the home together as their primary residence and raising a family there. However, this may not be ideal for a couple who went 95/5 on a house.
Proportionally: Another option is to allocate the assets based on each party’s contribution to the property. This would be more appropriate for a couple who went 95/5 on a home together. The person who went 95 would probably not feel comfortable with allowing a 50/50 split, so they want to make sure that their majority contribution is respected in the event of a divorce.
What factors should be considered when dividing joint property owned before the marriage in a prenup?
If you’re unsure of how to divide up your jointly owned property purchased before the marriage, here are some questions to ask yourself:
- How much did each of you contribute to the property in question? If it’s 50/50, then you’re probably okay with splitting the property 50/50. If it’s 95/5, then you’re probably not okay with splitting the property 50/50. Or maybe you are? This is something you need to consider.
- What is the property used for? If it’s the primary residence, for example, this may have other implications (both legal and personal). Even if you contributed a little bit more to the down payment of the primary residence, you might be okay with splitting the house 50/50 or even allowing the other spouse to have the house indefinitely because they are the main homemaker/childcarer.
- What about appreciation? How will you treat the appreciation of this joint asset purchased before the marriage in the event of a divorce?
Frequently asked questions (FAQs) about joint property purchased before the marriage
You asked, and we answered. See the most frequently asked questions on joint property below.
Q: How do you list joint property on a financial schedule during financial disclosure?
A: While it may seem redundant, both spouses should list the joint property and their percentage of ownership on the financial schedule, along with the total asset value and their share of the asset value. You may be wondering: why is that necessary? We obviously already know it exists since it’s jointly owned. Well, it’s necessary to outline all of the assets owned by each party prior to marriage in order to properly evaluate asset division at the time of divorce.
Q: Should I wait to purchase property until we’re married? Is it better to wait or buy before the wedding?
A: This depends on your situation, your goals, and your state laws. In some states, you may retain your separate interest if you purchase before the wedding day, and in other states, you may not.
Q: What if I own the majority of the interest in the joint property purchased before the marriage?
A: Let’s say you own 95% of the property, and your partner owns 5%. In some states, the amount of contribution is merely one factor in deciding how to split the property. If you were married for 20 years (a long-duration marriage), then the court may be more likely to say it’s a 50/50 split than a 60/40 split.
In other states, the court may allow you to retain your 95% interest in your separate property. Again, this greatly depends on your state laws and circumstances at the time of your divorce, and this is why a prenuptial agreement will create clarity and understanding.
The Bottom Line
The only way to ensure your original separate interest in property stays yours is through a valid and enforceable prenup. Default state law may not allow you to keep that separate interest in the event of a divorce (without a prenup).
Nicole Sheehey is the Head of Legal Content at HelloPrenup, and an Illinois licensed attorney. She has a wealth of knowledge and experience when it comes to prenuptial agreements. Nicole has Juris Doctor from John Marshall Law School. She has a deep understanding of the legal and financial implications of prenuptial agreements, and enjoys writing and collaborating with other attorneys on the nuances of the law. Nicole is passionate about helping couples locate the information they need when it comes to prenuptial agreements. You can reach Nicole here: [email protected]