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Married & Moving? What It Could Mean for Your Money

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So Jennifer Garner and Ben Affleck are splitting up. It’s a sad story (hey, I like Ben and Jen both), but there’s an interesting lesson for all of us in this news: That they agreed to divide their assets amicably (or so we are told) and mediate their divorce. This type of adult behavior is indeed rare in a split.

More importantly, they resided in California – it’s one of a handful of community property states, which has an effect on your finances as a couple (or to-be-former couple).

Community property statutes date back to when the U.S. annexed the southwestern states when it was Mexico’s territory. The states adopted the communal rules of family, a traditional approach to property rights that was based more or less on a homemaker and a working spouse (here’s a current list of community property states).

Community property is simple: Most assets accumulated during marriage are split equally between the spouses, no matter how they were earned. I am not a lawyer so I don’t give legal advice, but I am educated in this area and have been involved with divorces informing clients of what the general community property laws mean for them. Every state that has this law is different, so check with your state for specifics. Keeping that in mind, here are five must-know things about community property.

1. Retirement Accounts

Even though they are accumulated separately, they are considered community property and divided equally between spouses. Social Security is an entitlement account and is handled differently.

2. Inherited Money Is (Usually) Separate Property

Inherited money is usually considered separate property, but there is a catch. If the money is used to purchase other assets after the inheritance or new assets are generated, then it can be considered community property.

3. Businesses You Own

This is considered community property. This one can get ugly since the value is split with the spouse. It may be tough to raise the cash to pay the spouse. Imagine also having other shareholders involved or partners! It can get complicated. Talk to an experienced attorney about getting a spousal exclusion to those assets (like a postnuptial agreement). This is a very overlooked area in planning.

4. Prenuptial Agreements 

It may seem sad that a contract for the possible end of a marriage is made before the marriage commences, however this is the contract that will effectively stand up in court against the community property laws. Since this is a true contract, it should by all rights be a pre-division of assets. If you move from a state without community property laws to one that has them and there is a prenup in place, that is usually still binding.

5. Property Acquired Prior to Marriage

Assets accumulated prior to the date of marriage are considered separate property, but there is a catch. Make sure you detail those assets and valuations before the date of marriage. Remember I mentioned retirement accounts? Take inventory of your stuff prior to the marriage date. This will avoid the cost of a forensic accountant trying to figure out what belonged to whom.

As you go through a divorce, and after it’s final, it’s also important to check your credit to make sure all accounts you’re responsible for are being reported accurately. You can get your free annual credit reports from each of the three major credit reporting agencies from AnnualCreditReport.com. You can also check your credit report summary on Credit.com — it’s updated monthly so you can watch for important changes.

These are some of the basics, but it is not comprehensive. What ultimately happens though if a divorce suit is filed? Well, like the Garner-Affleck story, as long as both parties agree to the terms, community property laws may not come into play since there is an agreement. If not, then a judge in a court may ultimately decide on the division of assets based on state law.

If you are a person with a simple or complex wealth plan and are getting married, or remarried, and you live in a community property state, consult a Certified Financial Planner (CFP) or a family attorney to get good advice about your situation. You may not want to think about your marriage ever ending — nor the laws that apply if it ever does. However, you might one day be faced with the inevitable, so it can help to make sure you are ready for it.

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