Understanding Marital Finance and Asset Ownership

The Complexity Behind the One Paycheck Rule

It’s not at all that simple. It’s deceptively more complex than this, and the best way that I’ve come up with to explain how marital finance really works is the One Paycheck Rule.

Let’s say when you get married, you have the following assets: You have a condo with a little bit of equity in it. You’ve got a car. You have a checking account, a savings account, and a brokerage account. You have a retirement account. You’ve got some money in the different apps – Cash App, Venmo, and a small account on Robinhood for trading stocks. On the day you get married, each of those assets you already own are considered 100% your separate property.

But after you get your first paycheck, look at what happens: some of that money from the first paycheck after you get married goes to your retirement, automatically deducted from your paycheck into a 401k. Then that paycheck gets deposited into your checking account. You move a little bit of that money into your savings and a little into your brokerage account. That upcoming month you pay your car note. You pay the mortgage on your condo. And a little of that money goes into your Venmo.

How the One Paycheck Rule Affects Asset Commingling

The One Paycheck Rule says that your car, your condo, your checking account, your savings account, your retirement account – they’ve all been commingled and are no longer 100% your separate property. This is true even if not a single dime of your spouse’s money has contributed to any of these accounts. They’re commingled not because you and your spouse mixed money together. They’re commingled because you mixed money that you earned during the marriage with the assets that you owned prior to the marriage.

Every dollar you earn after the date you are married is considered marital money. And so as soon as that money touches your premarital money, you’ve now mixed those funds together, and separating back out what belongs to you separately and what belongs to the marriage is almost impossible. It’s like if everything you earned prior to marriage was a bucket of white paint, and you put one drop of red paint in that bucket – you’ve now tainted the entire bucket of white paint, and there’s pretty much no way you can separate it back out. If you spend money from your bank account after that first paycheck hits the account, how do you prove whether you spent money that was in the account prior to the marriage, or money that just went into the account from the new paycheck?

The Implications of Long-Term Commingling

Most marriages last a lot longer than one paycheck – the average marriage that ends in divorce has lasted 8 years. You can only imagine how difficult it would be to separate out what you had coming into the marriage and what was earned during the marriage when we’re not just talking about one paycheck, but hundreds of paychecks later.

Yes, you’re supposed to keep everything you brought into the marriage and split everything you and your spouse earn during the marriage, but this only works if you take all of the assets that you own prior to marriage and freeze them in time and never touch them during the entire marriage. And that’s just not how the world works. You can’t just open up a new 401K the day after your wedding. You can’t stop paying your car note or your mortgage. You don’t open up all new bank accounts during your honeymoon. So yes, the law says that you’re supposed to keep everything you bring into the marriage, but it doesn’t provide you with any way to make that a reality. The only way to be clear about what belongs to you and what belongs to your marriage is to put it in writing in the form of a prenup or a postnup. And this One Paycheck Rule is one of the big reasons that divorce is so expensive and painful. People get divorced after a decade of marriage and say – but what about all of the assets I had coming into the marriage? I shouldn’t have to split those, right? I had money in my retirement, I had a car, I had equity in a condo… In many if not most divorces, people lose all of that money and have to split it with their spouse, even though they owned those assets prior to marriage – because they can’t legally prove what belonged to them, and the cost of hiring forensic accountants and going to trial over that issue is often cost-prohibitive, not to mention you’re talking about a long expensive drawn out divorce to prove what you had coming in.

The Importance of Prenups in Avoiding Financial Disputes

For a tiny fraction of that expensive divorce, you can take all guesswork out of what you and your spouse are bringing into the marriage and what will go into the joint bucket, and what remains your separate property. This is helpful not just in a divorce case but in your marriage itself, it can help you eliminate arguments about the assets and debts that belong solely to you or your spouse, and you can focus on agreement in the accounts and assets that you agree are joint assets. You probably don’t want to be paying your spouse’s premarital debts from an account that is considered joint property under the law. You probably don’t want to just give over half of everything you earned before you even met your spouse if things don’t work out. It’s a good idea for most couples to come to an agreement on what will be joint and what will be separate before you even get married – and avoid all of the pain and confusion that comes from the one paycheck rule.