ESTATE PLANNING AND WISCONSIN MARITAL PROPERTY LAW

Wisconsin’s Martial Property Code is a comprehensive set of statutes that are riddled with complex details and exceptions. The marital property laws apply to spousal property rights during the marriage, in the event of a divorce, and also upon death. Failing to create an estate plan that takes the marital property laws into account can have unintended and even disastrous consequences at death.

What is the Purpose of the Marital Property Law?

The Marital Property Act was initially passed in 1986 with the intention of creating financial equality between spouses. The law acknowledges that both spouses contribute to a marriage in many ways, financially and otherwise, and whatever assets or income they acquire during the marriage should belong to them equally. This economic partnership also provides a spouse with an easier access to credit if his or her income is less than that of the other spouse.

What Property is Considered Marital Property?

For married couples that are domiciled in Wisconsin, subject to just a few exceptions marital property includes all assets and income acquired by a couple after their “determination date”.  A couple’s determination date is the latter of: (1) the date the couple was married; (2) the date that both spouses are domiciled in Wisconsin, or (3) January 1, 1986, the day the Marital Property Act became effective.

Property Classification

Despite the general presumption under Wisconsin’s marital property law that all property of spouses is presumed to be classified as Marital Property, there are various exceptions to this rule. Those exceptions are far too complex to fully address within this article, but two important exceptions include the concepts of “Individual Property” and “Mixed Property”.

Examples of Individual Property include property that a spouse owned prior to the marriage, or property that a spouse received as a personal gift or inheritance (either prior to or during the marriage). If the spouse properly titles such property under his or her individual name, maintains good records as to ownership, and does not mix or comingle the property with marital property, then the spouse may be able to substantiate that the property is his or her Individual Property. It is important to note, however, that simply titling an asset under the name of only one spouse does not classify the asset as Individual Property.

Mixed Property is the result of Individual Property becoming mixed up or commingled with Marital Property. Once such property is mixed together the law classifies all of the mixed property as Marital Property, unless the Individual Property component can be traced.

Marital Property Law and Estate Planning

An estate plan created during a person’s lifetime may include a Last Will and Testament, a Revocable Living Trust, and/or a combination of other important documents. Under Wisconsin’s marital property law a spouse’s estate plan may only address the disposition of his or her Individual Property, along with half of all Marital Property. The deceased spouse’s estate plan cannot direct the disposition of the surviving spouse’s half interest in the Marital Property.

If a spouse dies without a will or any other type of estate plan, then the laws of intestacy direct the disposition of his or her property and determine the “heirs at law” who will receive the property. The application of the intestacy laws can vary significantly depending upon the circumstances, especially if the decedent had children from a previous marriage or relationship.

Proper estate planning allows a married couple to coordinate their planning efforts and ensure that their Marital Property and Individual Property pass as desired upon each spouse’s death. Failing to properly set up your estate plan can result in unintended consequences. For example, a surviving spouse may end up owning property with the children from the deceased spouse’s previous marriage.

Estate planning in Wisconsin often involves the reclassification of property. Wisconsin allows couples to opt-in or opt-out of the marital property law. This is accomplished by the couple voluntarily entering into a written Marital Property Agreement. Such a document allows the couple to opt-out of the marital property law altogether, or to reclassify certain property as Individual Property and other property as Marital Property. A Marital Property Agreement provides a couple with the ability to properly classify their property and create an estate plan that will protect the interests of each spouse and satisfy their mutual goals for the disposition of their property at death.

A Marital Property Agreement entered into prior to marriage is often referred to as a prenuptial agreement. These agreements not only allow the couple to classify their property for estate planning purposes, they also typically address how property will be divided in the event of a divorce. A Marital Property Agreement entered into after marriage is often referred to as a postnuptial agreement. These agreements are commonly used for estate planning purposes as discussed above, but they may also include provisions about property divisions upon divorce if the couple wishes to include such provisions.

It is important that married couples in Wisconsin consult with an experienced Estate Planning Attorney to discuss all of their estate planning and marital property matters, including:

  • How to avoid probate upon the death of each spouse;
  • How to provide for a surviving spouse as well as children from a previous marriage;
  • How a marital property agreement can allow each spouse to classify his or her property;
  • How to receive a double step-up in cost basis and avoid capital gains tax;
  • How to pass life insurance policies to children from a previous marriage;
  • How to exclude certain heirs at law from receiving a share of your estate;
  • How an estate plan created in another state will be treated under Wisconsin Law.

If you have questions about this article contact Attorney Stephen Kosa today at 715-386-4125 to schedule an appointment.