Marriage is Punishable by State and Federal Law in America
For centuries, couples have walked down the ceremonial magic carpet toward marital bliss in the company of family and friends who are there to witness their perfect union. Sometimes these ceremonies are accompanied by birdsong under the expanse of a centuries old oak tree, or the muse of waves crashing to the shore, or while standing within the sacred sanctuary of a holy place. Most people think of their wedding day as the happiest day of their life, and it is indeed something to be in awe of because this unity not only comes with the promise of “until death do us part,” but also with a wing and a prayer because the divorce rate is 50% or above. Despite this enormous failure rate, people are still plowing down the aisle with the notion that somehow they will beat the odds and live happily ever after. Arguably, the eighth wonder of the world should be those couples who do remain blissfully married for life which keeps the light of possibility burning for newlyweds. But marriage is more complicated than people realize. In fact, most couples spend more time planning their wedding than educating themselves on the legal aspects of their union, or planning for their financial wellbeing. After all, marriage is, in legal terms, an “implied contract,” and while neither party signs an actual “marriage contract,” it is indeed a legal partnership that is heavily regulated by each state.
For the past decade or more, the question has been WHO can get married, but the question I pose here today is WHY get married? Marriage truly is the tie that binds, not just romantically, but also because it is a legally binding contract that can sometimes do more harm than good. Of course there are many legal benefits of marriage that include having access to a spouse’s employment benefits like health insurance, tax breaks for married people who file jointly, (there are also tax penalties for married couples), being the legal next-of-kin when it comes to making health decisions, and rights of survivorship if planned properly. It has been said that marriage is the foundation of a sound society, and it all sounds so lovely… until something goes wrong.
People leave their marriages for any number of reasons but according to the National Institute of Health, infidelity is among the top three causes of divorce. When most people think of infidelity, they think of one spouse being unfaithful via a romantic dalliance or full blown affair. The offended spouse has the option to leave the marriage and take their pre-marital and legal portion of any assets gathered over the course of the marriage with them, depending on the laws of the state in which a divorce is sought. Absent any protracted battle over assets or child custody, it’s neat and tidy, and the ties that were once bound together so blissfully, are severed. But what happens when a spouse is caught being criminally financially unfaithful? Let’s just say that the remedy for this scenario is far outside the reach of couple’s therapy, or a nice and tidy divorce, because the instrument of marriage can and does tie one spouse to another on more levels than I can offer here.
Financial crime/fraud generates a loss of between $426 billion to $1.7 trillion dollars a year. On average, white-collar crimes by one bad actor is about a million dollars. Although rare, I relish the calls I receive from innocent spouses where their husband is under indictment for financial crimes under $250,000 because these are “manageable.” Those who are successfully prosecuted for white-collar crimes are court ordered to not only pay back the ill gotten funds, (and or any gains), but are also mandated to pay court ordered penalties ON TOP of restitution. That one million dollar criminal judgement coupled with court ordered penalties can quickly add up to over 2 million dollars, not including attorney fees. Also, if ill gotten gains are not reported to tax entities, (income derived from fraud is considered income!), the financial burden grows even higher, for BOTH spouses if they file their taxes jointly. To make matters worse, depending on the jurisdiction and available assets, the government routinely seizes all marital assets through civil asset seizure during the investigation of a financial crime, (due to the low bar of probable cause), despite an indictment being one or more years away. Without notice, (or at least without discernable notice in many cases), bank accounts, cars with any value, homes with equity or high market value, 401(k)s from either or both spouses, and any other joint marital asset of value, can be taken and held by a court appointed monitor until a finding of guilt, which could be many more years down the road. An innocent spouse can file a claim for her portion of untainted assets as long as it is done in a timely manner, but too many jurisdictions across the country only recognize the innocent spouse owner as a third-party with little to no standing to make the claim. Can you imagine being deemed a THIRD-PARTY to your own assets? In other words, once the government has their grip on the innocent spouse’s legally owned property, it will not let go of if without a costly and bloody fight. The innocent spouse must retain knowledgeable legal counsel (caution - few attorneys understand this area of the law), that will likely end up costing the innocent spouse more than the asset(s) is worth. There is usually little to no legal remedy for the non-offending spouse so those who have not properly planned for a catastrophic financial event are left with no other option than to simply let go of all they have built over many years.
Readers are of course asking themselves what any of this has to do with them and their marital relationship. Unfortunately, it has everything to do with anyone who is married because white-collar criminals are wolves in sheep’s clothing. They are most often loving, charming, family men and women who perform good deeds in their community and are esteemed by their bosses, colleagues, family, and friends. They are church goers, government officials, your long-time doctor, your attorney, etc. Financial fraudsters are everywhere and nobody would ever peg these people as a criminal, least of all, their spouses. This is what makes this population of criminals so dangerous and why married people need to be forewarned and educated about how they own their jointly held marital assets. I wish I could report that white-collar crimes are rare, but they are becoming more prevalent by the day around the globe.
It is a myth that white-collar crimes are seldom prosecuted. Tell that to the throngs of wives who routinely seek my help in navigating the legal and economic nightmare of their husband’s financial fraud that laid their family bare. In fact, thousands of people are arrested and prosecuted every year for state and federal level financial crimes and that number is expected to rise as the Department of Justice is increasingly holding more executives liable for crimes committed by corporations that have in the past, been dealt with as a corporation.
White-collar crime is not only a crime against one’s employer, it is also a crime against one’s self, spouse and children. For this reason, it is imperative that couples who are considering marriage, or who are currently married, take the steps to protect their assets against ANY unforeseen and unimaginable familial/financial betrayal. Most married people do not foresee the need to protect their assets from one another due to the implied implicit trust that goes along with being in a deeply committed relationship because there is nothing romantic about the business end of the marriage contract. The sad fact is that the majority of those who enter into marriage could never imagine the need for such protections. Married people should have no expectation that a spouse would intentionally place their family in financial ruin. But waiting to protect assets until a financial infidelity reaches one’s doorstep is too late because the timing of financial protections is crucial.
Top Five Financial Protections for Married People to Consider:
(Before beginning this section, I want to make clear that federal law and state law both play a role in all aspects of the issues noted below.)
Pre-Marital Agreement - Pre-marital agreements are not just for the rich, but are powerful tools that couples can use to protect and separate assets. A pre-nup can separate one spouse’s debt from another by waving community property. This means that creditors can be limited from collecting from the non owing (non-offending) spouse. Post marital agreements are not advised as they will be heavily scrutinized if conjured after an obligation has been incurred. Instruments that are set up with the goal of defeating a creditor are considered fraudulent conveyances. It is vital to seek knowledgeable legal counsel when setting up a pre-nup!
File Taxes Separately - Each filer takes the standard deduction, or both must itemize their deductions. Everyone’s financial issues are different, but it might not be that much of a sacrifice to gain the benefit of a safety net. An ounce of protection is worth…everything because a financial crime committed by one spouse can leave the innocent spouse with a tax bill that might cost them thousands, if not millions of dollars. The White-Collar Wives Project sees this scenario all too often. Try doing your taxes both ways to see the benefit or loss of benefits for this method. Never sign a tax return blindly without knowing what you are signing, even if prepared by your spouse! Do not allow your spouse to negate or brush off any questions or concerns you may have about a tax-filing. Seek the advice of a tax accountant for more information on filing taxes separately.
Home Ownership - For optimal protection, married couples should own their homes with Tenancy by the Entirety (with rights of survivorship) rather than Tenants in Common. Some states do not automatically recognize TBE so check the laws in your state regarding this type of property ownership, as well as Homestead laws in your state. While the government can attach a lien to the offending spouse’s portion of a home owned by TBE, they cannot force the sale and will not be paid until and unless the home (land) is sold. Most white-collar innocent spouses cannot afford to maintain the family home on one income (or no income) so they sell their home asap and settle that portion of the debt with the government rather than lose it to foreclosure.
Irrevocable Trust - Because irrevocable trusts are managed by a trustee, they are not easily penetrated by outside parties. In other words, one does not control their own irrevocable trust as it is controlled by the trustee. Your residence, other real property, and some other assets are among the most appropriate to consider placing in an irrevocable trust. Also, protection of life insurance policies, cash, savings bonds, non-qualified annuities, qualified retirement plans, or other assets that are eligible for protection against creditors should be sought out. Lest there be any doubt, the government seeking a financial judgement for a white-collar crime is indeed a creditor and they will go to great lengths to get paid. Note - Many people make the mistake of placing their assets in revocable trusts for protection which do not provide a shield against creditors because they are owned and managed by the debtor and considered personal property. There are pros and cons to irrevocable trusts so please seek guidance from a qualified financial planner for more information on asset protection.
Conclusion
Nobody enters into marriage with the idea that one partner will intentionally perform financial harm to the other, but unfortunately, it happens too frequently to ignore. Married couples who take good care of their financial wellbeing does not mean they don’t trust one another. Quite the contrary. It means they care enough to provide peace of mind and protection when and if disaster strikes.
The White-Collar Wives Project has been featured in the New York Times, The American Bar Association Journal, Forbes, Market Watch, Bravo/Oxygen, the ACFE, and numerous esteemed national podcasts
