One of the first steps in resolving a divorce case is to identify the marital property to be divided. This requires classifying property as "marital property" or "separate property." Sometimes, this inquiry is not as simple as one might expect.
What is marital property?
The general rule is:
"Marital property" is anything of value that you and your spouse accumulated after the date of marriage and before one party files for a divorce.
"Separate property" is anything that you owned prior to the marriage, unless you mixed it with marital property ("commingling", discussed below) or changed title into your joint names ("transmutation", also discussed below.)
Are there any exceptions? What about an inheritance?
There are four exceptions to the general rule. That is, there are four situations where property that you acquire during the marriage is nevertheless separate property:
- Gifts made to one spouse only.
- Compensation for personal injury.
- Interest or returns earned on your separate assets.
The fourth exception is more complicated. Specifically, there is a rule, created in the famous case of Price vs. Price (1986), that an increase in value of a separate property asset may be marital property, if the increase in value was due, in whole or in part, to the efforts of the other spouse. Often, where this comes into play is with the marital residence.
What is "equitable distribution?"
That's the legal term for the idea that the divorce court has the authority to distribute marital property between you and your spouse as it sees fit - regardless of who holds title.
Prior to passage of the Equitable Distribution Law in 1980, the courts did not have the power to change title on an asset. Thus, if the marital residence was owned in your name, then it was yours, period, end of story. No longer.
In other words, the courts are no longer restricted by whose name is on the deed.
But in order to distribute the asset, it must first classify it as "marital property."
What if I have an account that has some of my money from before the marriage, and some money from after the marriage?
The property is "commingled." This happens in most cases, due to most people not isolating their existing property at the time of marriage. Let's say you had a bank account when you got married with $50,000 in it. You continued to use the account after marriage, depositing your salary and your bonuses there. Many people think of this account as still being their "separate" property.
But, it's not. The salary and bonuses earned during the marriage are marital property, regardless of whether they were deposited into an individual account or a marital account.
In fact, a legal presumption arises that the entire account is marital property. To counter that presumption, you would need to trace the account - that is, produce bank statements that clearly show what portion of the account was your separate property and what part was marital.
Depending on the circumstances, this may be easy as printing out a statement from the month that you were married. In other circumstances, it may be very difficult to prove what's what.
In general, the longer the marriage, the harder it will be to go back and separate the marital property from the separate property.
I bought the property that we live in long before the marriage. But, a few years back I added my spouse's name to the deed. Is this property marital or separate?
It's marital property because it was "transmuted." Transmuted means you changed title on an individual, separate asset such that it became a joint asset. The marital home is frequently "transmuted" into marital property because the titled spouse agrees at some point to put the other spouse's name on the deed.
The same thing occurs with a financial account. If you took an individual account and made it a joint account (either a JTWROS = Joint Tenancy With Right of Survivorship, or a Tenancy by the Entirety), the entire account would presumptively be marital property.
Is my retirement account marital property?
It's treated the same as any other asset. If you deposited marital funds into it, it's marital.
However, in most cases, retirement accounts are easily "traceable" in that it's easy to determine what was in the account at the time of marriage and to separate that from the marital portion. (Unlike, say, a checking account, which although it may have had X dollars on the date of marriage, may have bounced up and down and around, so that it's hard to say that the X dollars that were there on the date of marriage are part of the Y dollars that are in the account now.)
In most cases, you will end up dividing 50-50 the amount that the account has accumulated since the date of marriage.
For a pension, you will likely apply what's called the Majauskus formula, which means that you compare the length of time that you were married versus the length of time prior to marriage that the pension was accruing in order to determine what percentage of the pension benefit can be characterized as marital property.