Marital Property Agreements: They’re Not Just for Kanye West and Kim Kardashian
By Shanna N. Fink
February 23, 2022
Spring officially begins on March 20th – less than one month away. In Wisconsin, that means wedding planning is in full swing. One important item on many wedding planning to-do lists is a pre-nuptial agreement.
We hear a lot about “pre-nups” in pop culture. One of the most iconic pop culture references is in the song “Gold Digger,” by Kanye West. The lyrics caution getting married without a pre-nuptial agreement, lest you lose half of your wealth upon divorce. However, most of us do not perceive ourselves to be like Kanye West and Kim Kardashian. Is a pre-nuptial agreement necessary for the average person?
In reality, many married couples have marital property agreements. Wisconsin Marital Property Law provides default rules for the ownership, management, and disposition upon divorce or death of property owned by spouses. With limited exceptions, the default rule is that all property is marital property, and each spouse has an undivided one-half interest in marital property. This is the reason many married couples have a marital property agreement: they want to establish their own rules that differ from the default rule. Of course, spouses or soon-to-be spouses need to understand the default rule first 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 some statutory exceptions to the default rule. Second, spouses may establish their own rules in a marital property agreement, also known as a pre-nuptial or post-nuptial agreement, depending on whether it is signed before or after marriage.
In a marital property agreement, spouses may choose to deviate from the default rule that all property is marital property. Some spouses choose to classify all property as individual property unless it is mixed with marital property (e.g., deposited in a joint bank account or used to purchase a jointly titled home). This choice is particularly common in second marriages and other marriages that occur later in life, when each spouse has independently accumulated meaningful wealth before the marriage begins.
Wisconsin Marital Property Law classifies all income earned or accrued by a spouse or attributable to property of a spouse during marriage as marital property, with a few exceptions. As a result, spouses need to consider classifying income in addition to classifying property itself. If individual property is mixed with marital property, then the individual property is converted to marital property. That is, unless the individual and marital components of the property can be traced. In practice, tracing the individual and marital components of property is nearly impossible.
An example of how individual property may be inadvertently mixed with marital property is helpful: Before marriage, Jack has a brokerage account. Jack and Diane get married without a pre-nuptial agreement. After marriage, Jack leaves the brokerage account titled in his name only, intending that it will remain his individual property. The brokerage account produces dividends during marriage, which are reinvested in the brokerage account. The brokerage account has become mixed property because income accrued during marriage is marital property, while the brokerage account itself was individual property. Unless Jack can trace the individual and marital components of the mixed property, the brokerage account is converted in its entirety to marital property.
Jack and Diane could have avoided this inadvertent problem by signing a marital property agreement that classifies the brokerage account, along with all income from and appreciation in the value of the brokerage account, as Jack’s individual property. Many spouses and soon-to-be spouses identify certain assets that they want to remain their respective individual property during marriage, and they also include provisions that ensure the income from and appreciation in the value of these assets are classified as individual property to avoid an inadvertent reclassification like that of Jack and Diane.
Why is the classification of property 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 he or she were an unmarried person. In other words, the spouse can sell his or her individual property without the consent of the other spouse; the spouse may retain the individual property upon divorce, rather than lose half of it to the other spouse; and the spouse may choose to give the individual property to someone other than the other spouse upon death.
Wisconsin Marital Property Law is complex, and we have just barely scratched the surface. If you have questions regarding Wisconsin Marital Property Law or marital property agreements, please feel free to contact any attorney on Ruder Ware’s Estate Planning Team.
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