Andrea Coombes, reporter for the Wall Street Journal, recently spoke with McManus & Associates founding Principal John O. McManus for a story looking at married couples who keep their investment accounts separate and sometimes even their house, too, with only one spouse on the title. For these duos, their tax-deferred retirement accounts are typically owned singly, as well. A top AV-rated attorney, McManus helped Coombes examine some of the potential problems that can arise when a couple keeps assets separate, in addition to solutions to those problems.
On Sunday, Coombes’ story, “Separate Assets, Joint Problems,” was published and problems that can arise for couples who don’t merge their accounts revealed. Here are the top four problems identified in the article:
1. Those assets aren’t necessarily separate under the law.
2. Separate accounts may foster a failure to communicate.
3. Separately owned property may be at greater risk in a bankruptcy or lawsuit.
4. Separate accounts can lead to administrative difficulties.
For the third item, Coombes points out that “joint ownership can protect your nonfinancial assets if you file for bankruptcy or a lawsuit is filed against you, because creditors and plaintiffs tend to steer clear of property in which they’ll end up owning a half interest.” Property owned separately, however, isn’t automatically protected in that way, but Coombes cites advice from McManus on how to shield individually owned assets in such situations. From the article:
Joint ownership is a “very good way to serve as a deterrent for people going after some of your primary assets,” like a house, says John McManus, founder of law firm McManus & Associates in New Providence, N.J. “They don’t want that asset in a plaintiff’s action against me because they cannot easily force my wife to sell,” he says. “And now they’re stuck with a one-half interest in this property.”
However, for estate-planning reasons, Mr. McManus prefers that his clients hold assets in separate names so they can be placed in individual trusts, which can make it easier to direct where those assets end up after you’re gone. (Separate may mean each spouse owns various assets outright, or that they share ownership through a “tenants in common” designation—a form of co-ownership where each owns his or her share independently.)
For example, he says, a trust could be set up this way: “If my wife dies, she leaves me as trustee. I can spend it, I can use it as I need to, but when I die, the only place that that’s going is to our children and not to my new spouse.”
Meanwhile, the assets are protected against creditors or litigants. Mr. McManus uses his house as an example: “I’ll put my half interest in trust today,” he says, so his interest goes to his wife when he dies. “And if I’m sued, I’ve already surrendered my interest in the house, so I’m protected.”
What McManus is referring to is a completed gift of a 50% interest in the residence to an irrevocable trust. A creditor could attack the interest in a revocable trust, but a properly drafted irrevocable trust agreement with spendthrift provisions is generally not accessible to a creditor.
To get details on the other three items on Coombes’ list, check out the full story here.
McManus & Associates can help you determine whether it’s best for you and your spouse to keep assets separate (and, if so, which ones). Give us a call at 908.898.0100 to discuss.