You Don’t Know the Half of It

When we wed a few years ago, I like to think my wife was aware she was getting hitched to an eccentric fella. What she might not have appreciated was that I was soon to start my next semester of law school by learning about trusts and estates, where I would discover Wisconsin’s marital property laws. What ensued was an endless string of jokes about how even though her salary was primarily supporting us, I legally owned half of it. Thank goodness she had the patience to put up with my antics!

Behind the jokes lies a legal reality that is often overlooked by Wisconsin residents. Wisconsin is a community property state. That means that all property individually accumulated by each spouse in a marriage is legally shared 50-50 between the spouses. This is different than the law of 41 of the 50 states (including all of Wisconsin’s neighboring states), where property accumulated by each individual spouse remains the legal property of that spouse, unless certain exceptions apply. In the day to-day, the distinction doesn’t often make much difference. Whether a car is technically one spouse’s property or the other’s, they are likely to share it. The distinction matters a lot more in other situations:

  1. Divorce. In community property states, the martial property is generally split in half (since the spouses were already legally entitled to half), and each spouse gets half.
  2. Estate Planning. Each spouse can only dispose of their share of the marital property through their estate. That means that Spouse 1’s estate alone cannot donate property to charity if Spouse 2 still owns one-half of that property.
  3. Owning a company. When two or more people decide to form a company together, they each prepare to share ownership of the company with their business partners, but they don’t always expect to share that ownership with their business partners’ spouses. However, if a married business partner dies or divorces, their spouse will automatically end up with half of that partner’s ownership in the company.

The good news is that these community property issues can be addressed before they go sideways. Marital property agreements can allow married couples to agree ahead of time on how their marital assets will be handled in the event of death or divorce. Similarly, business partners and their spouses can enter into agreements ahead of time where they agree to follow a certain process in the event of death or divorce, such as the company buying the spouse’s share. The challenge is foreseeing these issues and having the difficult conversations ahead of time. In situations like these, an ounce of prevention is truly worth a pound of cure.