The five things to know are:
1) Marital property can be divided, but separate property cannot.
2) An inheritance is separate property unless placed under joint control.
3) Marital Property is usually, but not always, divided 50/50.
4) Increase in value of separate property CAN be deemed marital property.
5) The marital residence can be handled in various ways.
1) Marital property can be divided by the court, but separate property cannot.
In a divorce, property that either spouse owns can (and will) be classified as either marital or separate. This is different from - though sometimes affected by - title to the asset. In other words, marital vs. separate property is a different question than joint vs. individual. Your bank account may be individually titled (meaning only in your name) but if it consists of money you earned during the marriage, the contents are marital property subject to division. On the other hand, jointly held property is almost always marital - though even there, there are exceptions.
The court has the power to divide or distribute marital property. The court does not have the power to divide or distribute separate property.
The Profits of the Marriage
Marital property represents "the profits of the marriage" - that is, anything that you or your spouse acquired after the wedding and before one of you filed an action for divorce. (Thus, anything you acquired before the marriage is separate property, subject to a few limitations.)
Exceptions - Separate Property Acquired During the Marriage
Further, there are certain exceptions, whereby property remains separate even if it was acquired during the marriage:
- Inheritances or gifts received by one spouse.
- Personal injury compensation.
- Property acquired in exchange for other separate property.
- Increase in value of separate property
Separate Property: Acquired Before the Marriage
Property that was acquired prior to the marriage is your separate property, as long as it didn't suffer one of the following fates:
Commingling: If you mix separate property property with marital property, the general rule is that the asset becomes marital. However, in most cases, if the separate property component can be easily separated from the marital property component, the court will generally still separate the two. An obvious example is a retirement account. Rarely does a married person have the foresight of setting up a new retirement account when they marry. Invariably, they continue to deposit into the same account. Conceptually then, they have mixed separate property with marital property - thus, the whole thing becomes marital. However, in this instance it is not difficult to identify the separate property component, provided that you can produce an account statement from the time of the marriage. The account statement should identify the account balance at the time of marriage and in most cases you can safely conclude that amount is separate and the increase since then is marital. This is usually possible with retirement accounts because in most cases there are no withdrawals, and with the notable exception of a market crash, the account balance generally goes up.
Transmutation: This is a fancy term for putting an asset into both of your names. Let's say you have $50,000 in your own savings account. Following the marriage you decide to combine assets and deposit the $50,000 into a joint account. Since it is now in both of your names, it is now marital property - even though it was earned prior to the marriage. There may be some situations where it is possible to claw back the transmuted separate property, but presumptively, once it's re-titled in joint names, it is marital.
Marital property is anything you acquired during the marriage, regardless of title, so long as it doesn't fit into one of the four exceptions. Separate property is anything in the four exceptions, plus anything you acquired prior to the marriage, as long as you haven't commingled it with marital property or re-titled it into joint names.
2) An inheritance remains separate property unless placed under joint control.
Lots of people ask about their inheritance. As I alluded to above, an inheritance is separate property. However, that assumes that you did not place the inheritance in joint names. If you did so, then the way that the law looks at this is that you gifted the inheritance to the marriage. Now that it's in joint names, it's marital property subject to division.
Yet, for every rule there exists an exception, and in some cases the person who inherited the money can claim that it was placed in a joint account for convenience only. Let's say you were married ten years and combined your finances so that you only had joint accounts. You received an inheritance two years ago and placed it in a joint savings account. Six months ago, it came to your attention that doing so makes it marital property and you opened an individual account and transferred it there. Most likely, the property would be characterized as your separate property.
3) Marital Property is usually, but not always, divided 50/50.
In most cases marital property is divided 50/50. This is particularly so where the marriage lasted over 10 years (typically considered the dividing line between a "marriage of long duration" and a "marriage of short duration.") The matter can be summarized as:
- "There is no requirement that the distribution of each item of marital property be on an equal or 50-50 basis." Arvantides v. Arvantides (Court of Appeals, 1985)
- However, "where both spouses contribute equally to a marriage of long duration, a division of marital assets should be made that is as equal as possible." Strang v. Strang (1995).
Contributions means: what did each spouse contribute to the marriage? Did both spouses work throughout the marraige? Did one spouse go to work while the other raised the kids and managed the household? If either of those are true, the court will almost surely find that the parties contributed equally to the health of the marriage. On the other hand, if one spouse did not work, but neither did she (or he) look after the children or do anything else particularly noteworthy, then perhaps the working spouse has a claim that he/she should receive more than 50% of the assets. This is relatively rare, but possible.
Fault refers to bad behavior on the part of one spouse that justifies an unequal division of assets. The behavior must be "egregious," which is a very high bar to meet. Adultery is not egregious, nor is most types of domestic violence. The DV must rise to the level of attempted murder or an injury so serious that it affects the victimized spouse's ability to work. For example, in Havell v. Islam, the husband attempted to murder the wife in front of the children. In that case, the court awarded the vast majority of the assets to the wife. (1st Dept. 2002).
4) Increase in value of separate property CAN in some circumstances be deemed marital property.
This is a big one because it usually comes into play regarding the marital residence.
The rule is statutory, arising from the definition of separate property in Domestic Relations Law 236(B)(1)(d)(3): ". . . the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse".
In other words, if the property went up in value can be somehow tied to something the non-titled spouse did (their "contributions") then the increase in value is marital property.
The influential Court of Appeals case of Price vs. Price (1986) clarified that the term "contributions" can mean either direct contributions or indirect contributions, including those of a homemaker or primary parent.
The facts that result in the application of this rule usually go something like the following:
- The husband purchased a townhouse (co-op, condo, etc.) in Manhattan prior to the marriage.
- The parties lived together in the home as husband and wife for a long time.
- Usually, there were some kind of renovations to the house that the wife oversaw or otherwise participatd in.
- Usually, the parties had children and the wife was the "primary parent" (though I personally am not overly fond of that term)
- The home greatly appreciated in value during the marriage.
- At the time of divorce, the home is one of the main assets of either party (perhaps the only asset of any consequence.)
In this fact pattern, the judge is understandably sympathetic to the wife, and does not want to award the million-dollar condo to the husband and tell the wife sorry but she has nothing to her name.
As an example, this is how the analysis would proceed:
- Husband purchases townhouse for 300,000 in 1990.
- Marriage in 1992.
- The parties had 2 kids and the wife was the homemaker and primary parent.
- Divorce filed in 2013.
- The evidence establishes that FMV (fair market value) of the home was 300,00 in 1992 and 3,000,000 in 2013.
- Husband's separate property: 300,000
- Marital property: 2,700,000 divided equally = 1,350,000
- Husband's interest in home is 1,650,000
- Wife's interest in the home is 1,350,000.
5) The marital residence can be handled in various ways, depending on the circumstances.
How will the court handle the marital residence during and after the divorce? This is a different question than how much of an interest each of you have in the residence. Some of the ways that your home might be handled are:
Buyout by one spouse
One spouse can buyout the other spouse's interest in the home. Assuming the mortgage is titled in both of your names, the buying spouse will need to refinance (i.e., obtain a new mortgage) to remove the other spouse's name from title. Once that's accomplished the parties sign a deed whereby the property is transferred into the buying spouse's sole name.
Sold and the proceeds distributed
The home may be sold on the open market and the net proceeds distributed between the parties, either 50/50 or in another manner fitting the facts of the case (perhaps one party is deserving of more due to having made the down payment, etc). The spouses need to agree upon a broker to manage the sale of the home and will need to stage the home, etc.
You might agree that one spouse can remain in the home for a certain period of time (say, a few years) and then the house will be sold and the net proceeds divided. Until that time the mortgage might remain in your joint names but you can agree upon (or the court will order) which one of you is responsible for the mortgage & maintenance payments, property taxes, utilities, and so forth.
Award to one party
If you have sufficient marital assets such that one party wishes to exchange certain other assets so that he/she may keep the marital residence, then the home is simply awarded to one party. Still, in this instance if the mortgage is joint, the party to whom the home is awarded must take steps to refinance the mortgage and remove the other person's name, because the other spouse is entitled to be freed of this legal liability.