The Millennial Generation continues to break the traditions of previous generations. Never scared of asking questions and doing things differently, these 25-to-40-year-olds are veering away from joint bank accounts and keeping their money in separate accounts.
Millennial parents also have one eye on the future. Almost 30% of them have already started saving for their kids’ college. Although less than half of these parents are aware of 529 plans—tax-advantaged plans used to invest in the education of individual children.
A recent Bank of America survey shows the majority of Gen X and Baby Boomer couples use joint bank accounts, with only 10-15% keeping their money in single-person accounts. More than 25% of Millennials have decided to keep their finances separate.
One reason could be Millennials embracing technology. With apps like Venmo and Zelle, you can transfer money from person to person in a snap. Another reason may come from experience. Millennials have watched their parents and grandparents go through divorces and struggle to divide their assets.
Here is the catch—keeping separate bank accounts or only putting one person’s name on a house deed does not truly separate the assets into two separate baskets when a marriage is concerned. When a marriage is dissolved in California, a couple’s assets are usually melted into a large puddle that is referred to as community property. This puddle is evaluated, mopped up, and divided into two separate buckets.
Divorce is challenging. Parsing out the marital assets can be the most difficult step in this process. California is a no-fault or 50/50 divorce state, so when identifying and dividing assets, it usually falls into one of two categories:
- Community property – Equally shared property by the couple
- Separate property – Property that belongs solely to an individual spouse.
Identifying community property usually depends on assets both brought into the union or gained by either spouse while married. This may include:
- Income and wages
- Bank accounts and cash
- Stocks and bonds
- Intellectual properties
- Real estate
- Home furnishings
During a divorce, any assets falling into community property are owned by both spouses and divided fairly in the divorce negotiations.
The division of property can get complicated, especially in high-asset divorces. The terms often get contested, leading to courts where a judge divides the assets according to California’s community property laws.
The laws are different from an equitable distribution state where family courts evaluate various aspects of a case before property and debt are allocated to each spouse. Among the many aspects analyzed by the court usually include:
- Who was at fault?
- Financial hardship
- Child custody
But in California, a married couple or domestic partners are a legal community, and property encompasses both debts and assets. It does not matter who is determined to be at fault for the divorce or either spouse’s financial situation either before or during the marriage. All of it gets split during a divorce.
Because of California’s laws, it is imperative to act preventatively by protecting assets like an inheritance before a divorce happens.
Gifts directly given to only one spouse and any inheritance received by only one spouse are seen as separate property. No matter whether someone inherits property before or during their marriage, it is considered separate property, and a spouse has no ownership rights.
But exceptions do exist. Two of these exceptions transfer inheritances from separate property to community property.
- Transmutation – Allowing a spouse to be assigned joint ownership of inherited property. This can happen if both spouses sign their names on a house deed or a car title.
- Commingling – If money is inherited, it should be deposited into a non-joint banking account. If this money is used to buy anything for both spouses, this is considered commingling, making it community property. If a house or money is inherited, but the beneficiary sells the house or uses the money to buy a new house or repair and remodel the existing home with their spouse, then this new house or the increased value of their home becomes community property.
This does not mean these exceptions are absolute, but if these assets get transmuted or commingled, it can be an uphill battle proving inherited assets should still be treated as separate property during a divorce.
The marital assets should get divided fairly, but this does not always mean equal. In some cases, a judge may deem a settlement as unfair and decide to add separate property to balance it out.
Some Preventative Tips
Recent surveys have also seen an increase in couples getting prenuptial or postnuptial agreements. Millennials have been the largest demographic using these legal contracts as an effective solution to secure separate property.
The entertainment industry has given prenups and postnups a bad name for making marriage seem like a financial negotiation, but couples discussing these agreements allow for honest conversations regarding finances and marital property.
Separate bank accounts may not protect property during divorces, but they are not worthless. Keeping money in a separate account can help in a bind. If a divorce gets hostile, and a spouse blocks access to funds or marital property, it is a good practice to keep at least one credit card and one checking account separate.
During a contentious divorce, no one wants to appeal to a judge so they will order their spouse to loosen the control of their funds just to pay ordinary expenses like bills and childcare or attorney retainers.
Eventually, these separate accounts may have to be divided up in settlements, but they can help in a tough spot. Someone already going through a tough divorce does not need to be cut off financially or dependent on the court or their loved ones to help support them.
It is also important to keep thorough files, records, and notes detailing any inherited property. In the event these assets are questioned, evidence is essential to trace when the inheritance was received and who has the sole ownership of it.