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by Paul M. Talbert
In my practice as a divorce attorney, I have found that money or financial stress is one of the most common causes of marital conflict and divorce. In some relationships, one partner has substantially greater family resources that may create anxiety or mistrust in the other spouse. Therapists and marriage counselors naturally must address these stressors when attempting to help couples resolve their conflict. But in the course of doing so, therapists must be aware that their advice can have serious legal and financial consequences if the marriage later ends.
On several occasions in my divorce practice, I have dealt with the following situation: A client comes to my office for a divorce consultation. In the course of discussing her finances, she explains that she inherited a large sum of money from her parent’s estate during the marriage. However, her husband—although professing no interest in “her family’s money”—felt that her segregation of those funds from their marital accounts revealed a lack of trust or commitment to the marriage.
During marriage counseling, they reach an agreement to put her inheritance money in a joint bank account. Two months later, the husband filed for divorce and steadfastly insisted that the jointly titled bank account with the wife’s inherited funds should be divided equally. What seemed like, or was expressly represented as just a gesture of trust, now potentially has devastating financial consequences to the wife: A court may conclude that she has no greater entitlement to the inheritance than her husband. Accordingly, a therapist would be well-served to know some basic tenets of matrimonial law prior to issuing advice that may have serious financial ramifications on divorce.
On divorce, most states provide that only marital property is subject to division between the spouses. Some states, like California, are community-property states, requiring all marital property to be divided equally between spouses. Other states, like New York and Florida, are equitable-distribution states in which all marital property is divided equitably between spouses. The court determines what is “equitable” after considering and applying to the circumstances of the case several factors enumerated in the state’s laws. Each state has its own list of statutory factors for a court to consider in determining what is equitable.
Importantly, most states carve out certain categories of property that will not be considered community property or marital property. It may be called “separate,” “exempt,” or “nonmarital” property. But in general, this type of property is not subject to division by the court on divorce. Each state has its own definition of separate property. The most common forms of separate property are:
- Assets acquired prior to marriage.
- Money or property received by inheritance or gift.
- Property distributed from a trust.
If those assets remain in the sole name of the inheriting spouse and are not commingled with marital funds, they often remain protected from division on divorce. The philosophy behind excluding those funds from division is that they are not the product or fruit of the marital partnership. They are simply funds that one spouse received during the marriage unrelated to either party’s efforts or marital endeavors.
However, if the separate property funds are commingled with marital property funds (even if the bank account is in that spouse’s sole name), a court may find that the previously separate property funds are now marital property subject to division. Or if the separate property funds or asset have been placed into a joint account, or retitled in the parties’ joint names, most states will find that the previously “separate” property has now been “transmuted” into marital property and is subject to division on divorce. The courts presume that the party intended to contribute those funds to the marital estate.
For some couples, that may be an acceptable result and a product of their actual intention. But for others, they had no understanding that by placing the asset into joint names, essentially one half of the inheritance was gifted to their spouse. In situations where one spouse’s inherited funds were the core of their net worth and financial safety net, the financial consequences may be severe and unintended.
Therapists and counselors often encourage shared accounts or pooling resources because doing so may help restore trust, build intimacy, and reduce resentment. That may be the correct course for some couples, and forfeiting some financial rights may comport with their intent. But many do not fully appreciate the consequences of their actions, and they never intended to give up substantial assets that their spouse would otherwise not be entitled to.
Counselors are not lawyers and are not expected to give, and should not place themselves at risk by giving, legal advice. But identification of the potential consequences is valuable. It may be wise in counseling when suggesting potential resolutions to these financial conflicts to advise that couples:
- Consult with an attorney (or at least a financial advisor) before making major changes like merging assets or altering title to property;
- Consider a written, legally enforceable agreement, such as a postnuptial or prenuptial agreement, to address how such property will be treated on divorce or death;
- Reflect carefully on whether the transfer is truly necessary or merely symbolic, and whether the emotional need reflects a deeper issue (lack of trust, control, insecurity) that should be addressed on psychological rather than financial grounds.
With at least a basic understanding of how the law treats marital and separate property—and by encouraging clients to get legal/financial advice when considering commingling or re-titling—therapists can not just help patients protect their relationship but also ensure that their actions match their intentions in case the marriage does not survive.
