Agreements on matrimonial property: they are not just about Kanye West and Kim Kardashian | Ruder Ware

Spring officially begins on March 20and – less than a month. In Wisconsin, that means wedding planning is in full swing. An important item on many wedding planning to-do lists is a prenuptial agreement.

We hear a lot about “pre-nups” in pop culture. One of pop culture’s most iconic references is found in Kanye West’s song “Gold Digger.” The lyrics warn against getting married without a prenuptial agreement, lest you lose half your fortune in the event of a divorce. However, most of us don’t think of ourselves as Kanye West and Kim Kardashian. Is a prenuptial agreement necessary for the average person?

In reality, many married couples have marital agreements. Wisconsin marital property law provides default rules for the ownership, management, and disposition upon divorce or death of property belonging to spouses. With few exceptions, the default rule is that all property is marital property and each spouse has a 1/2 undivided interest in the marital property. This is why many married couples have a marital agreement: they want to set their own rules that differ from the default rule. Of course, spouses or future spouses must first understand the default rule in order to negotiate their own rules.

There are two types of exceptions to the default rule that all property is marital property. First, Wisconsin law establishes certain statutory exceptions to the default rule. Second, spouses can set their own rules in a marital agreement, also known as a prenuptial or postnuptial agreement, depending on whether it is signed before or after marriage.

In a marital agreement, spouses can choose to waive the default rule that all property is marital property. Some spouses choose to classify all property as separate property unless it is commingled with marital property (for example, deposited in a joint bank account or used to purchase a house jointly). This choice is especially common in second marriages and other marriages that occur later in life, when each spouse has independently accumulated significant wealth before the marriage began.

Wisconsin marital property law classifies all income earned or accrued by a spouse or attributable to a spouse’s property during marriage as marital property, with some exceptions. Therefore, spouses should consider classifying income in addition to classifying assets themselves. If sole proprietorship is mixed with marital property, then sole proprietorship is converted into marital property. That is, unless the individual and marital elements of the property can be traced. In practice, tracing the individual and matrimonial components of assets is almost impossible.

An example of how individual assets can be inadvertently mixed with marital assets is helpful: Before the marriage, Jack had a brokerage account. Jack and Diane marry without a prenuptial agreement. After the wedding, Jack leaves the brokerage account titled in his name alone, with the intention that it will remain his individual property. The brokerage account produces dividends during the marriage, which are reinvested in the brokerage account. The brokerage account became a mixed asset because the income accrued during the marriage is marital property, while the brokerage account itself was an individual asset. Unless Jack can trace the individual and marital elements of the mixed assets, the brokerage account is converted in its entirety to marital assets.

Jack and Diane could have inadvertently avoided this problem by signing a marital property agreement that classifies the brokerage account, along with all income and appreciation in the value of the brokerage account, as Jack’s individual property. Many spouses and future spouses identify certain assets that they wish to keep in their respective individual property during the marriage, and they also include provisions ensuring that the income and appreciation in value of these assets are classified as individual property for avoid an inadvertent reclassification like that of Jack and Diane.

Why is property classification important? Wisconsin law provides rules regarding the management of marital and individual property and the disposition upon divorce or death of marital and individual property. Generally, a spouse who owns individual property can manage and dispose of the individual property as if they were an unmarried person. In other words, the spouse can sell his individual property without the consent of the other spouse; the spouse can keep the individual property upon divorce, rather than losing half of it to the other spouse; and the spouse can choose to give individual ownership to someone other than the other spouse upon death.

Wisconsin marital property law is complex, and we have barely scratched the surface.

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