Would you sign a contract that could potentially leave you deep in debt without reading the fine print?
Would you sign a contract if the terms of the contract changed whenever you moved to another state?
Did you know that marriage is a legal contract that can significantly restructure your finances, your assets, your future liabilities, and more? And if you move to another state, the terms of your marriage contract can change.
As many as 85% of married couples have entered a major contract that governs their legal and financial affairs without reading or understanding the fine print. According to The Harris Poll, only 15% of Americans report that they’ve signed a prenuptial agreement, meaning that as many as 85% of married Americans may not fully understand the legal and financial liabilities and ramifications of their marriage.
Do you know Washington state’s default laws on community and separate property?
When you get married without a prenuptial agreement, your marriage is governed by Washington state’s default rules. This means that state law will govern property rights, debts, and liabilities. In other words, without a prenuptial or postnuptial agreement, Washington state law will govern which property is considered separate and which property, debts, and liabilities are considered shared marital property.
If you think it’s important to know how this works, this article is for you.
We’ll cover:
- Washington’s State Default Rules: The Fine Print of the Marriage Contract You Might Not Have Read
- Why You Might Want Something Different Than the State Default Rules
- How a Prenuptial Agreement Keeps You in Control
- Why Couples Who Move Frequently Might Want to Consider a Prenuptial Agreement
- It’s Never Too Late: When a Postnuptial Agreement Makes Sense
- How Other Legal Tools Can Help
- Get Clear on Hidden Assumptions in Your Marriage
Washington’s State Default Rules: The Fine Print of the Marriage Contract You Might Not Have Read
Washington state’s default laws define what is considered separate and shared marital property. Separate property is typically any property or debt you brought into the marriage, while shared property is any income earned during the marriage, any property purchased with marital income, and any debts acquired during the marriage.
Under Washington state law RCW 26.16.010, separate property is any property or debt acquired before marriage, and any property acquired as a gift or inheritance during your marriage.
Yet separate property can be considered marital property if it becomes difficult to trace during your marriage, or if it becomes blended with marital property. An example of this would be when a couple goes into a marriage with separate bank accounts, opens a shared bank account after they get married, and then transfers money from their separate accounts to the shared account.
Another example would be where one spouse owned a home in their own name before the marriage, but, over the course of the marriage, their spouse helps pay the mortgage, makes significant repairs, or investments in upgrades, or the couple puts the home in both their names during the marriage.
Yet another example would be where one spouse owns their own business, and started their own business prior to marriage, but then, after they are married, the spouse uses marital funds to help float the business during hard times or asks their spouse to work for the business without pay.
These are all actions that can lead to the blending of separate property into marital property.
Some of these actions might be intentional, such as when one spouse takes the step to add their spouse to the title of their home, or when a couple opens a shared bank account. Yet other actions can lead to unintentional commingling of separate assets. An example of this would be the case where a person uses marital income to help support their own struggling business, or where marital income is used to pay a mortgage in only one spouse’s name.
Under RCW 26.16.030, community property is any property or debt acquired after marriage. This includes income, real estate purchases, businesses, investments, retirement accounts, and more. Both spouses have a right to the property, and one partner generally isn’t permitted to unilaterally sell or give away community property without the other partner’s consent.
In the case of a shared account, each spouse is entitled to half of the funds, and more than half of the funds of any shared account cannot be used without the other spouse’s permission. Debts acquired during marriage are generally considered shared debts.
Do you know what property is separate or shared in your marriage? Every situation is unique, and certain circumstances can make distinguishing between separate and shared property especially difficult. A prenuptial agreement lawyer can review your specific situation and offer counsel and guidance.
Other situations can make adhering to Washington state’s default laws burdensome or difficult.
These situations include:
- Business Ownership
- Ownership of Investment Properties or Real Estate
- Retirement Accounts
- Inheritances
- Having Children from a Prior Marriage
- High Net Worth
- Anticipated High Student Loan Debt or Medical Debt
- A History of High Debt or Debt Issues
- Significant Wealth Disparity Between Spouses
- Caregiving Duties
- Being a Military Spouse
- And Other Situations
This is by no means an exhaustive list of situations where you and your spouse might want to take a closer look at Washington state’s default marriage laws. A family law attorney at Truce Law can review your specific situation and offer a roadmap forward.
Why You Might Want Something Different Than the State Default Rules
It can be helpful to think of Washington state’s default laws as the “boilerplate” marriage contract. Think of it as a kind of generic contract. While these forms can work in very simple situations, they might not suffice in more complex circumstances.
So, if you’re getting married for the first time, have no assets, have no debts, and neither partner stands to inherit any assets, nor does either partner plan to get deep into student loan debt, or start a business, then you might not need to worry too much about Washington state default laws. The boilerplate state default laws governing marital property might work for you.
That said, things can change. And if they do, then things can get complicated.
Marriage is a contract with hidden assumptions. There are many reasons why couples might want to clarify these assumptions.
Here are some circumstances where it can be helpful to get clarity about the fine print of your marriage contract:
- One spouse owns a business, plans to start a business in the future, or both spouses plan to open a family business together as a couple.
- One or both of you are legal professionals, physicians, or work in the start-up sector where you might receive equity compensation or start your own business someday.
- One or both spouses have significant investments including real estate, and plan to continue developing these portfolios during the marriage.
- One or both spouses have an established retirement account or pension and want clarity about how getting married might impact retirement.
- One spouse has received, or will receive, a significant inheritance.
- You or your spouse have children from a prior marriage that you must support, and who will inherit from you.
- One or both spouses have a high net worth.
- One or both spouses plan to pursue advanced courses of study and will likely acquire significant student loan debt.
- One or both spouses bring significant debts into the marriage, or the couple anticipates that they will acquire significant debt during the marriage, either due to illness or other factors.
- One spouse is significantly wealthier than the other.
- The plan is for one spouse to stay home to care for children, or one spouse will remain out of work to perform significant caregiving duties.
- One or both spouses are in the military.
- One or both spouses will support the other spouse while pursuing significant goals.
- You anticipate big moves to another state or country, where one spouse will likely financially support the other for some time.
This is not a complete list of all the reasons why a couple might want to take a closer look at Washington state default laws.
Ultimately, Washington state community property laws might not offer sufficient clarity for individuals in these situations. This is where a prenuptial or postnuptial agreement can make a big difference.
How a Prenuptial Agreement Keeps You in Control
A prenuptial agreement is an important legal tool that lets you write the fine print of your marriage contract and change the default fine print so that it can better meet your needs and goals.
For example, you can use a prenuptial agreement to:
- Clarify business ownership or protect the interests of a business you want to keep separate when you get married.
- Protect investors and business partners if you plan to get married.
- Gain clarity about how new investments in a real estate or investment portfolio will be handled in your marriage.
- Plan for retirement, together and separately.
- Clarify whether marital funds will go to support children from a prior marriage and clarify how you’d like your estate plan to look.
- Create a shared business and financial plan for your marriage if one or both spouses are high net worth.
- Protect your spouse if you will likely acquire significant student loan or medical debt during your marriage.
- Ensure that a spouse with significant caregiving duties is cared for.
- Openly discuss how investments and sacrifices made by one partner during the marriage will translate into shared interests in the future.
- Gain clarity about how equity compensation will be handled in your marriage.
- Outline how inheritance will be handled within your marriage and for future generations.
- Get clear about your “home base” and financial plan if you or your spouse serves in the military.
Again, this is not an exhaustive list. You and your prenuptial agreement lawyer can sit down, discuss your goals, and work together to create a marriage contract that works for you and your spouse, given your specific circumstances.
Why Couples Who Move Frequently Might Want to Consider a Prenuptial Agreement
Different states have different default laws for how property is handled during marriage. So, even if you know Washington state’s default laws, and think you’re okay with Washington state law governing how assets, debts, and properties are handled during your marriage, things could change if you end up moving to another state during your marriage.
Some states, like Washington, are community property states, meaning that any assets, property, or debts acquired during the marriage are considered shared marital property, regardless of whose name is on the account or title. Other states are common law states. In these states, only jointly held accounts, titles, and debts are considered marital property.
So, in Washington state, if your spouse opens a credit card in their own name after you marry, any debt they put on the card would generally be considered marital, and therefore shared debt under Washington state’s default laws. But, in a common law state, that debt might be considered your spouse’s sole responsibility because only their name is on the account.
If you plan to move to other states during your marriage or if you are a military couple, you might want to speak to a family law attorney about how moving to another state during your marriage could impact your rights under different state default laws.
Prenuptial agreements are contracts, and contracts are valid in every state. This means that even if you move to another state, your understanding of how marital finances work stays the same, no matter where you move.
It’s Never Too Late: When a Postnuptial Agreement Makes Sense
If you are already married and all of this is news to you, it’s important to know that it’s never too late to clarify and re-write the fine print of your marriage contract. A postnuptial agreement allows you and your partner to take a closer look at Washington state’s default laws, and adjust the fine print to meet your needs, after you are already married.
If your life circumstances change, or get more complicated, or if life plans change, a postnuptial agreement allows you and your partner to take a closer look at default marriage laws and determine if they still make sense given your new circumstances.
While it’s usually best to start with a prenuptial agreement, postnuptial agreements can also work if they are drafted by a family lawyer. In some situations, couples might also consult with other professionals to put additional protections in place.
How Other Legal Tools Can Help
Other legal tools like estate plans, wills, trusts, business operating agreements, and more can help you further refine, solidify, and clarify your financial and legal business plan. Often, these legal structures work in concert with a prenuptial and postnuptial agreement.
For example, if you want to set aside income and assets for children from a prior marriage, your prenuptial agreement lawyer can write this detail into your marriage contract, but your will and trust lawyer can structure your finances and estate plan so that the funds are available and go to the right place at the right time.
Your prenuptial agreement lawyer can write a clear contract that enumerates each party’s rights regarding a shared or separate business, but a business formation lawyer can structure your business so that your business’s legal structure and operating agreement reflects these goals.
Other professionals might periodically be brought in to support a couple working on a prenuptial or postnuptial agreement. The prenuptial agreement is a good time for a couple to discuss their financial plans, their retirement plans, and goals, and often a couple will hire an accountant, financial advisor, or estate planner, to help them formalize these goals.
The collaborative family lawyers at Truce Law know that most family matters aren’t just isolated to family law. The collaborative family law process is a team-based approach that brings together multiple professionals from multiple disciplines to help couples find solutions that work.
Next Steps
If you have questions about whether a prenuptial agreement or postnuptial agreement is right for you, reach out to the family law attorneys in Washington state at Truce Law today. We can help you explore your options and help you take the next step.
And, if you want to learn more about how the fine print of the marriage contract can impact all aspects of your marriage, you might want to sign up for Truce Law and Eunoia Consulting’s April 23rd webinar on The Executive Household: Managing the Business of Family.