Some married couples enjoy living together while keeping their financial assets separate. Separate ownership of assets can be advantageous in some instances, but oftentimes loving couples misunderstand the results of holding separate assets. The Wall Street Journal recently highlighted four potential pitfalls for couples maintaining separate accounts:
- The assets are not necessarily separate under Nevada law.
Simply having your name on an account does not mean the account is yours alone. Under Nevada law, pursuant to community property principles, all of your earnings and wages after marriage are the property of both parties. This is true even if you have your paycheck deposited into a separate account.
Nevada inheritance laws can surprise couples. If you die without a will and leave a surviving spouse, no children and surviving parents, your parents are entitled to a portion of your estate. Many spouses intend for their entire estate to go to a surviving spouse. However, unless that desire is set forth in a will or trust, the state may direct otherwise.
- Separate accounts most often mean lack of communication.
Communication between spouses is critical. Many spouses have separate retirement accounts and manage those accounts in isolation. This isolated planning can undermine the couple’s financial objectives and their combined risk tolerance. Regularly, I meet with clients where both spouses are unaware of accounts or policies that one spouse possesses. These omissions could cause the account proceeds to go missing or remain unclaimed for long periods of time.
In addition, holding similar investments in two separate accounts can be more costly. Combining the separate holdings may result in lower advisory fees.
- Separately-owned property may be at greater risk in bankruptcy or a lawsuit.
Nevada has very liberal exemptions for bankruptcy purposes. These protections can be utilized best by conferring with an attorney who focuses on asset protection planning.
Joint ownership can make your assets less appealing to creditors. Creditors loathe joint assets in which they will hold only a one-half interest. Separately-owned property is less-protected from creditors. The home is the primary asset to hold jointly or through a trust.
- Separate accounts are more difficult to administer.
The death of a loved one causes plenty of heartache. Maintaining separate account causes needless headaches too. The time delay in accessing separately-owned accounts can lead to draining financial stress. Many financial institutions demand formal court orders before allowing access to financial accounts, even when such orders are not necessary. At a minimum, couples should maintain a joint checking or savings account to make sure the day-to-day expenses can be satisfied.
Posted in Asset Protection, Community Property, Probate
Tagged Asset Protection, Bankruptcy, Community Property, Estate, Finances, Inheritance, Probate, Trusts, Wills
How you hold title to an asset affects how it can be disposed of during lifetime and how it will be distributed upon your death. Title to property affects inheritance taxes and the extent to which probate may be needed.
Community Property. Nevada is a community property state. Property acquired during marriage by the labor of either or both spouses is deemed “community property” and each spouse has an equal interest therein. It is possible to acquire or hold property as “community property” or as “community property with right of survivorship.” The additional language “with right of survivorship” ensures that the surviving spouse will receive title to the whole of the asset upon the death of the first spouse. Holding an asset as community property also creates a tax advantage, in that the surviving spouse will get a step up in basis on the asset to the date of death of the first spouse. In other words, the surviving spouse will not have to pay a capital gains tax on the increase in value from the date of purchase to the date of the first spouse’s death.
Separate Property. A married person may also hold property as his or her separate property. This includes property that was acquired prior to marriage, or property acquired during marriage by one spouse only as a gift or an inheritance. A spouse with separate property may make a gift of that property to the community by deeding or changing title of the asset to community property. If the spouse continues to hold the property as separate, upon death the spouse may will it to anyone he wishes; the surviving spouse does not have any legal right to it. However, if a spouse with separate property dies without a will, separate property will pass according to Nevada’s laws on intestate succession, and the surviving spouse will be entitled to a share of the property.
Joint Tenancy. Two persons, whether or not married, may hold property as joint tenants. Upon the death of one joint tenant, the surviving joint tenant becomes the owner of the whole of the property. In other words, the heirs of the first joint tenant to die do not inherit that person’s interest in the property; it passes by operation of law to the surviving joint tenant. For this reason, sometimes joint tenancy language also says “with right of survivorship.” For married couples, a partial step-up in basis is available if title is held in joint tenancy.
Couples should be aware of and sensitive to the manner in which they hold title. A change in how an asset is titled will change how the asset is distributed at death. If you have questions or concerns, you should contact a qualified Nevada attorney.
By: Sharon M. Parker, Esq.