Questions about protecting Premarital Assets

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BRode
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Questions about protecting Premarital Assets

Post by BRode » Thu Dec 06, 2018 1:55 pm

Let's say I have premarital assets including stocks/funds in a taxable brokerage account and separate savings/checking cash accounts. These remain in my name after I get married, and I don't contribute any income earned after marriage to them. Can I do each of the following, and have it entirely (including appreciation) remain a separate asset?:

1. Periodically transfer funds between my checking account and brokerage account (including to purchase more shares or new stocks, but using the same brokerage account). The question is how much can I move things around without it being considered active management/appreciation.
2. Sell stocks and put the cash in the same bank account under my name. I would pay taxes on the gains using my separate assets.
3. Use money from my cash account to purchase something our family needs (TV, credit card bill, phone), understanding that whatever gets purchased is marital.
4. Invest at a new, different brokerage account under my name only, only using cash in my separate accounts.

Some other questions:

What about dividends? I usually reinvest them, but I've read they can be considered marital so does this mean I should instead take the cash and deposit it into a joint account (though if I later move to a state where they are considered separate, would this action count as comingling?). Likewise, should any interest gained in a savings account also be treated the same?

I would use my separate assets to pay taxes on any capital gains or interest in my savings accounts. Can this still be done while filing taxes jointly?

Is it ok to open a new joint account with a brokerage or bank that I already have premarital accounts in, or does that confuse the issue and assume comingling?

Any reason to get a new credit card after marriage?

Does activity in an index fund imply there is active trading going on, even if I'm not the one doing it?

It almost seems that in order to keep something as separate, the safest thing to do is put it in something I'm comfortable with long term like a large index fund and not needing to touch it. The degree of effort and record keeping required to keep premarital assets separate does not seem simple. I have accounts in different banks, brokerage firms, so am thinking I should merge as much as possible. Short of a prenup, any other advice on how to maintain my separate assets?

afan
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Re: Questions about protecting Premarital Assets

Post by afan » Thu Dec 06, 2018 3:04 pm

Some of the answers will depend on your state. Keep in mind that many people move from one state to another. The answers could change.

You need to consult an attorney who knows the laws of your current state and consider whether you need a prenup.

If you take money out of your sole assets for family support then at least some divorce courts have considered the assets to be fair game. Again, speak with a lawyer to get details for your situation.

When we got married neither of us had any assets to protect. If either of us had significant assets before marriage we would have done a prenup.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Meg77
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Re: Questions about protecting Premarital Assets

Post by Meg77 » Thu Dec 06, 2018 3:35 pm

If you really want to keep things separate then usually a trust is the best/only way to go. You can get a prenup, but then you still actually have to carefully monitor and track everything indefinitely to make sure the separate assets stay separate. This is much easier said than done, as you are finding. It's very, very easy to comingle funds and even hard assets like real estate.

State law varies, but usually all income is considered joint/marital/community, so dividends and capital gains distributions would have to be distributed out, not reinvested. In some states, growth on separate property is also considered joint marital property - so really all you'd need to do in that case is keep statements from the month/quarter you got married to prove the value at marriage and then not worry about it.

In any case, your spouse's attitude matters most. A vindictive soon-to-be ex spouse can contest anything and drag out a divorce and rack up insane legal costs no matter WHAT kind of prenup or trust or system you put in place. And a good attorney can often successfully contest your best laid plans. On the other hand, I've seen very wealthy client couples divorce amicably and agree to all kinds of financial divisions themselves or in mediation or just with the help of their investment managers.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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HueyLD
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Re: Questions about protecting Premarital Assets

Post by HueyLD » Thu Dec 06, 2018 3:43 pm

The most important fact omitted from the original post: which state do you live in?

Thegame14
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Re: Questions about protecting Premarital Assets

Post by Thegame14 » Thu Dec 06, 2018 3:51 pm

you need a prenup that specifically lists the assets and their values at the time. Adding more to the account would probably confuse and make things more complicated.

c1over8
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Re: Questions about protecting Premarital Assets

Post by c1over8 » Thu Dec 06, 2018 3:54 pm

My state has equitable distribution which means that while you would get to keep your separate assets, the judge could decide that its “equitable” to award all (or a majority) of the marital assets to your spouse in a divorce. A prenup would address that risk.

123
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Re: Questions about protecting Premarital Assets

Post by 123 » Thu Dec 06, 2018 3:56 pm

Meg77 wrote:
Thu Dec 06, 2018 3:35 pm
If you really want to keep things separate then usually a trust is the best/only way to go. You can get a prenup, but then you still actually have to carefully monitor and track everything indefinitely to make sure the separate assets stay separate. This is much easier said than done, as you are finding. It's very, very easy to comingle funds and even hard assets like real estate...
I've read a number of these type of posts and don't recall the suggestion of a trust before (maybe I missed it). As a non-lawyer the trust strikes me as a potentially good idea for maintaining seperate assets but of course the expenses can be high in terms of set-up costs, annual fees, tax preparation expenses, and (likely) higher taxes for income that trust makes. The OP did not indicate the amount of assets he/she wished to protect. I would guess that if it's $1M or more maybe a trust would make sense, if less than $250K maybe not, between it could be a toss-up.

Maybe it's easier/cheaper to just hold off on any proposal or have an indeterminate engagement. If children enter the picture at any time, before or after any prospective marriage, the segregation of premarital assets will likely go up in smoke one way or another.
The closest helping hand is at the end of your own arm.

BRode
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Re: Questions about protecting Premarital Assets

Post by BRode » Thu Dec 06, 2018 9:07 pm

HueyLD wrote:
Thu Dec 06, 2018 3:43 pm
The most important fact omitted from the original post: which state do you live in?
NJ, which is an equitable distribution state.

BRode
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Re: Questions about protecting Premarital Assets

Post by BRode » Thu Dec 06, 2018 9:09 pm

c1over8 wrote:
Thu Dec 06, 2018 3:54 pm
My state has equitable distribution which means that while you would get to keep your separate assets, the judge could decide that its “equitable” to award all (or a majority) of the marital assets to your spouse in a divorce. A prenup would address that risk.
Meaning that if a judge sees that one spouse has significantly more premarital assets, he/she may give the other spouse a greater share of marital assets to balance it out?

Chris K Jones
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Re: Questions about protecting Premarital Assets

Post by Chris K Jones » Thu Dec 06, 2018 11:16 pm

Yes. A cynic would say that the judge can do whatever the hell they want! :(

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sperry8
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Re: Questions about protecting Premarital Assets

Post by sperry8 » Fri Dec 07, 2018 9:37 am

From the info I've unearthed over the years, keeping assets separate is a good idea. I would create an intermediary account to ensure separation,

For example,

1- Your pre-married assets
2- A checking account in your name.
3- Your co-mingled assets, checking accounts, etc.

If you need to pay bills and need money from #1 to do so - I'd transfer first from #1 to #2. Then I'd transfer #2 to #3. In that way, only #2 is transferring to #3 and if one wants to claim that is now co-mingled, so be it. But #1 is isolated.

As for reinvesting dividends I can't see that it matters. As long as #1 was pre-marital assets - those assets remain as such as long as they are never comingled or used for any marital purpose. It would be disingenuous to say that any growth in those assets are now co-mingled. After all, even if divs are not reinvested, what do they expect that you'll keep in cash earning 0%? Even divs earning 2% via MM are still earnings. That said, talk to a lawyer to understand further.

As for a prenup - who cares. I'd be more worried about keeping assets separate. A prenup doesn't protect current assets better imo. They can be ripped apart by judges and lawyers.
Humbling BH contest results: 2017: #516 of 647 | 2016: #121 of 610 | 2015: #18 of 552 | 2014: #225 of 503 | 2013: #383 of 433 | 2012: #366 of 410 | 2011: #113 of 369 | 2010: #53 of 282

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HueyLD
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Re: Questions about protecting Premarital Assets

Post by HueyLD » Fri Dec 07, 2018 9:52 am

Alternatively, remain legally single and problems solved.

A paid consultation with a good lawyer is needed if you want to get married and are very concerned about your separate assets.

There is no free lunch.

mptfan
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Re: Questions about protecting Premarital Assets

Post by mptfan » Fri Dec 07, 2018 10:00 am

sperry8 wrote:
Fri Dec 07, 2018 9:37 am
From the info I've unearthed over the years, keeping assets separate is a good idea. I would create an intermediary account to ensure separation,

For example,

1- Your pre-married assets
2- A checking account in your name.
3- Your co-mingled assets, checking accounts, etc.

If you need to pay bills and need money from #1 to do so - I'd transfer first from #1 to #2. Then I'd transfer #2 to #3. In that way, only #2 is transferring to #3 and if one wants to claim that is now co-mingled, so be it. But #1 is isolated.
This is good advice, but I would take it one step further... If you need to pay bills with funds from #1, transfer the funds to #2 and then pay the bills directly out of your individual checking account without transferring the funds to #3. This can be done by writing a check or ACH or using #2 to pay a credit card bill.

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sperry8
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Re: Questions about protecting Premarital Assets

Post by sperry8 » Fri Dec 07, 2018 11:00 am

mptfan wrote:
Fri Dec 07, 2018 10:00 am
sperry8 wrote:
Fri Dec 07, 2018 9:37 am
From the info I've unearthed over the years, keeping assets separate is a good idea. I would create an intermediary account to ensure separation,

For example,

1- Your pre-married assets
2- A checking account in your name.
3- Your co-mingled assets, checking accounts, etc.

If you need to pay bills and need money from #1 to do so - I'd transfer first from #1 to #2. Then I'd transfer #2 to #3. In that way, only #2 is transferring to #3 and if one wants to claim that is now co-mingled, so be it. But #1 is isolated.
This is good advice, but I would take it one step further... If you need to pay bills with funds from #1, transfer the funds to #2 and then pay the bills directly out of your individual checking account without transferring the funds to #3. This can be done by writing a check or ACH or using #2 to pay a credit card bill.
Personally I still like the idea of moving from #2 to #3 and think it is more protective than your suggestion. If the monies are truly for the couple (co-mingled), then they should always come out of #3. If you pay from #2 - then it is no different than #3. It is now being used to pay assets for the couple and could now be considered co-mingled. By design I want an account that is NOT being used for the couple. This is #2. But it is being used to move monies to the couple. So I want it to exist so #1 is one account removed from the co-mingled account.
Humbling BH contest results: 2017: #516 of 647 | 2016: #121 of 610 | 2015: #18 of 552 | 2014: #225 of 503 | 2013: #383 of 433 | 2012: #366 of 410 | 2011: #113 of 369 | 2010: #53 of 282

mptfan
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Re: Questions about protecting Premarital Assets

Post by mptfan » Fri Dec 07, 2018 3:21 pm

sperry8 wrote:
Fri Dec 07, 2018 11:00 am
Personally I still like the idea of moving from #2 to #3 and think it is more protective than your suggestion. If the monies are truly for the couple (co-mingled), then they should always come out of #3. If you pay from #2 - then it is no different than #3. It is now being used to pay assets for the couple and could now be considered co-mingled. By design I want an account that is NOT being used for the couple. This is #2. But it is being used to move monies to the couple. So I want it to exist so #1 is one account removed from the co-mingled account.
You make a good point, if the payment is being used for the benefit of the couple then I agree, but your original post did not make that distinction. It's possible that you may want to pay something that is not for the benefit of the couple, in which case my suggestion still applies. But looking at the big picture I get your point that once the account is comingled or any payments are made to a joint account an argument can be made that the account is now a marital asset regardless of the reason for any individual payment and I agree, so the more I think about it my suggestion may be overkill assuming there are any transfers at anytime from #2 to #3.

BRode
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Re: Questions about protecting Premarital Assets

Post by BRode » Fri Dec 07, 2018 6:13 pm

sperry8 wrote:
Fri Dec 07, 2018 9:37 am
From the info I've unearthed over the years, keeping assets separate is a good idea. I would create an intermediary account to ensure separation,

For example,

1- Your pre-married assets
2- A checking account in your name.
3- Your co-mingled assets, checking accounts, etc.

If you need to pay bills and need money from #1 to do so - I'd transfer first from #1 to #2. Then I'd transfer #2 to #3. In that way, only #2 is transferring to #3 and if one wants to claim that is now co-mingled, so be it. But #1 is isolated.
Interesting, this seems very prudent.
As for reinvesting dividends I can't see that it matters. As long as #1 was pre-marital assets - those assets remain as such as long as they are never comingled or used for any marital purpose. It would be disingenuous to say that any growth in those assets are now co-mingled. After all, even if divs are not reinvested, what do they expect that you'll keep in cash earning 0%? Even divs earning 2% via MM are still earnings. That said, talk to a lawyer to understand further.
I agree with your logic, since those dividends are seemingly passive increases in income. But I've come across lawyer websites that something similar to the following: If you have a brokerage account or any kind – pre- tax or post tax – call your broker or plan administrator before the marriage and have them “sweep” the accounts of any income that is earned by moving monthly that income into another account designated as the “community” account. Use the post-tax income (“community”) account for any expenditures you might need during your marriage. Never touch the account from where the income was swept. https://www.northtexasdivorcelawyers.co ... l-protect/

The above site is based on Texas, which is a community property state, but there is also this from an equitable state: https://www.divorcesource.com/research/ ... c143.shtml The court ultimately decided that the growth of the account was marital, although funds were only put in before marriage.

Still, I am hesitant to remove dividends, etc and put it into a joint account mainly for the reason that an argument could be made that that act itself is comingling. Also, as you said, almost everything earns some money, and I don't think it's an option for the limited interest my checking/savings account earns to not be redeposited in the same account.

BRode
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Re: Questions about protecting Premarital Assets

Post by BRode » Fri Dec 07, 2018 6:28 pm

I have spoken to some lawyers who practice in this field. I'm getting some mixed advice ranging from nonchalantly telling me to just keep my accounts separate, not add income to them after marriage, and I'll be fine, to telling me any efforts short of a prenup are completely useless. I'm sure part of it is that some lawyers are more knowledgeable than others, and maybe some are trying to get prenup business from me, but part of it must be that this can be subjective and is not always black and white.

Though I realize that most here aren't lawyers, the advice has been helpful and given me other things to consider.

dknightd
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Re: Questions about protecting Premarital Assets

Post by dknightd » Fri Dec 07, 2018 6:47 pm

I'm not a lawyer, so don't take my comments as legal advice.
If I was concerned about protecting premarital assets, I would not get married.
Further, I would not share a communal living space. Just visit each other once in a while.
:beer

AerialP
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Re: Questions about protecting Premarital Assets

Post by AerialP » Fri Dec 07, 2018 7:00 pm

I agree with those suggesting avoiding marriage.

H-Town
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Re: Questions about protecting Premarital Assets

Post by H-Town » Fri Dec 07, 2018 7:14 pm

BRode wrote:
Thu Dec 06, 2018 1:55 pm
It almost seems that in order to keep something as separate, the safest thing to do is put it in something I'm comfortable with long term like a large index fund and not needing to touch it. The degree of effort and record keeping required to keep premarital assets separate does not seem simple. I have accounts in different banks, brokerage firms, so am thinking I should merge as much as possible. Short of a prenup, any other advice on how to maintain my separate assets?
There's only so much you can do. It's up to who will hire a better lawyer first when things go south in the future.

Two things:
1) Stop thinking how you can organize premarital assets. Instead, direct your energy into finding the right spouse for you,
2) Accept the possibilities of losing half of premarital assets as the price of admission for a marriage life.

c1over8
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Re: Questions about protecting Premarital Assets

Post by c1over8 » Mon Dec 10, 2018 9:22 am

BRode wrote:
Thu Dec 06, 2018 9:09 pm
c1over8 wrote:
Thu Dec 06, 2018 3:54 pm
My state has equitable distribution which means that while you would get to keep your separate assets, the judge could decide that its “equitable” to award all (or a majority) of the marital assets to your spouse in a divorce. A prenup would address that risk.
Meaning that if a judge sees that one spouse has significantly more premarital assets, he/she may give the other spouse a greater share of marital assets to balance it out?
Yes, the judge can do this for a multitude of reasons, and even if both spouses had no premarital assets, the judge can award a greater share of the marital assets to one spouse if it would be "equitable."

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leeks
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Re: Questions about protecting Premarital Assets

Post by leeks » Mon Dec 10, 2018 9:37 am

AerialP wrote:
Fri Dec 07, 2018 7:00 pm
I agree with those suggesting avoiding marriage.
+1
Your post makes your sentiments clear. You want what is yours to stay yours. Do not marry if you do not desire a full "all-in" partnership.

Just cohabitate. You each pay your own share of expenses like roommates. You each manage your own long-term savings.
Many relationships these days work well this way. It sounds like the right approach for you.

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