The advantage of a prenuptial agreement is clear when one of the spouses files for Chapter 7 bankruptcy soon after the marriage. But even in a community property state, money that belongs to each spouse is his or her exclusive property. Therefore, money belonging to the non filing spouse should not be affected by the bankruptcy of the filing spouse. For example, you have $100,000 in your bank account acquired before marriage. After you marry, your spouse, files for Chapter 7 relief to discharge $80,000 of credit card debt. Will your spouse’s bankruptcy affect your $100,000? In California, a community property state, your $100,000 is your separate property. It will not be affected by your spouse’s bankruptcy.

If you had a prenuptial agreement, it would even be clearer that the $100,000 has nothing to do with your spouse. But what happens when you put your spouse’s name on the $100,000 account as a joint account holder, then your spouse files for bankruptcy? That’s a different situation because even if the source of the funds is your savings, the fact that you put your spouse in as a joint account holder might mean that you decided to give your spouse a legal interest in the entire $100,000 as a gift. In this situation, you could lose as much as $80,000 of your money to the bankruptcy trustee even if only your spouse filed for bankruptcy, and even if the source of the money is your own savings before marriage. So, a word to the wise, if you have pre marital assets of any kind, don’t put your spouse’s name as a joint owner on any of these assets, to preserve the status of your own assets as separate property to make these assets immune from your spouse’s bankruptcy.