Whether your property is classified as separate or marital is key to how a judge will divide property in your divorce. Separate property includes assets or real property owned by one spouse before the marriage or received during the marriage through inheritance, gift, or devise. Sometimes, assets or income acquired during a couple’s legal separation can be classified as separate property as well. Marital or community property assets are owned jointly by both spouses. Marital property, unlike one spouse’s separate property, is subject to division in a divorce.
To further complicate matters, different states follow different rules for dividing marital property. There are two main approaches to dividing property in a divorce–the equitable distribution and the community property approach. Most states follow an equitable division approach where marital property is split fairly, but not necessarily equally between the spouses.
A minority of states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and Alaska under certain circumstances) have enacted community property laws which generally result in a 50-50 split. Where you live and how your property is characterized can make a huge difference in how it's divided in your divorce.
Yes, one spouse’s separate property can become marital and subject to division in a divorce. This happens a number of ways, but namely through commingling. “Commingling” is another word for mixing assets, and it happens when a couple combines separate and community or marital property and uses them in such a way that the property loses its separate character. For example, if you entered the marriage with a vintage Mustang convertible, but used your spouse’s income to fix up the car, maintain insurance, and repaint the vehicle, your convertible may no longer be yours alone. In other words, your separate property (the Mustang) has been commingled with community property (marital income) and has lost its separate character.
In some cases, you may be able to trace assets and account for exactly how much marital income was used to fix up and maintain your separate vehicle. A judge may allow a spouse to retain his or her separate asset and payback the marital estate for any funds used to improve that spouse’s separate property. However, even if you are able to trace assets and account for any commingled assets, there’s no guarantee that a judge will allow you to maintain that separate property. Some judges will refuse to classify one spouse’s property as separate once it has been commingled with marital property. The outcome of your case will depend largely on the laws of your state and the unique facts of your case.
Careful planning during your marriage can help keep your inheritance and gifts separate in a divorce decree. Specifically, a monetary gift from your parents during your marriage can lose its separate nature if the money is added to a joint checking account. The best way to make sure that your gift stays yours is by keeping the money in its own account or in your own individual checking or savings account.
If the money has already been mixed during your marriage, it still may not be too late. Obtain all the documentation you can tracing where the money came from. You can also ask your spouse to agree that the money was intended as your own separate gift. If you’re already in the throes of divorce, you should never hide assets, move money, or open or close accounts without the go-ahead from your attorney.
One of the most costly and difficult aspects of divorce is when couples argue over property. Tracing assets can be an arduous process, particularly if you and your spouse were married for a long time. In some cases a prenuptial or postnuptial agreement may protect you, but that’s not always the case. If you’re worried about losing your separate property in a divorce, seek out a local family law attorney for advice before it’s too late.