Arguing over Money Leads to Divorce: 4 Common Misconceptions about Money & Marriage

It’s official.  According to Sonya Britt, a Kansas State University researcher, arguing about money early in a relationship is the top predictor of divorce.  And if money disagreements lead a couple to divorce court, most spouses don’t realize that it introduces a new complexity into their financial affairs:  the provisions of the family law statutes.

When couples marry in California, their financial affairs become governed by the California Family Code.  Most people have no idea what the California Family Code requires regarding family finances, or that they are agreeing to abide by those requirements when they marry unless they discuss this topic with a lawyer.  Typically, the way people get educated about this topic is when one or both individuals want a prenuptial agreement.  A prenuptial agreement allows couples to opt out of the California Family Code in part, or in total, by reaching their own agreement about their financial affairs.

Education about the Law before Marriage

It has always been my belief that the best way to discuss, negotiate and enter into a prenuptial agreement is through a mediated process (see my prior post The Mediated Prenuptial Agreement:  A Happy Beginning.  If such discussions take place, then the likelihood of a divorce because of arguments over money should be reduced.  This is particularly true if those discussions include defining the provisions of the California Family Code as they relate to the marriage’s financial assets.

Common Misconceptions

The California Family Code is complex and how it is applied differs from case to case.  Therefore, legal advice must be sought to understand the legal consequences of the Family Code as it is applied to a particular situation.  With that being said, ignorance about what the Family Code requires can create these common misconceptions about financial matters involved with marriage

  1. Misconception: The Income Earned by One Spouse is Not the Property of the Other Spouse.

Reality:  In California, unless a prenuptial agreement provides otherwise, all income earned during the marriage is community property, and all property acquired with that income will be divided equally upon divorce.  Many clients believe that because they earned the money, both the money itself and assets acquired with that money belong to them, to the exclusion of the other spouse.  This is simply not the law.

          2.  Misconception: The Real Property of One Spouse Automatically Becomes Community Property.

Reality:  When a person owns a home or other piece of real property before marriage, this property does not automatically become community property and therefore the other spouse does not get half-ownership in this property upon marriage.  While the other spouse may acquire a community interest in this property, it does not occur simply by virtue of getting married.

          3.  Misconception:  A Bank Account Held in the Name of One Person is Separate Property.

Reality:  Many people believe that if an account is held in their name alone the money deposited to the account during the marriage is the separate property of the account holder.  This is inaccurate in most situations.  If the money deposited to the account is community property (income earned during the marriage), then the funds in the account are community property and divisible upon divorce.

          4.  Misconception: The Debt Incurred during the Marriage by a Spouse is that Person’s Separate Property.

Reality:  Just as income earned during the marriage becomes community property, so too does debt incurred.  Therefore, regardless of which spouse incurs the debt, both spouses are jointly responsible for paying it.  There are exceptions to this rule, but they are truly exceptions. Common (though not exclusive) examples of exceptions are debts incurred which are not for the community’s benefit, such as spending money on an extramarital affair, unknown gambling addictions, drug addictions,  or for similar undesirable or illegal purposes. 

Misconceptions of all kinds can destroy a marriage; but arguments over financial expectations can be minimized with some education to clear up financial misconceptions before the “I Do’s” are exchanged.