Separate vs. Marital Assets Under Property Division Law
When couples prepare to divide their assets in a divorce, the distinction between marital and separate property has significant legal consequences. Marital property is often presumed to include most property earned or purchased by either spouse during the marriage. Separate property generally includes property owned before the marriage, inheritances, and individual gifts received during the marriage. Property that a spouse acquires after filing for divorce or after a “date of separation” defined by state law may be separate as well.
Commingling and Transformation of Property
A spouse’s separate property can become marital property if it is mixed with marital funds, which courts often describe as commingling. For example, if one spouse owns a bank account before the marriage but deposits income earned during the marriage into that account, the original separate property could transform into marital property. A separately owned house can become partially marital if marital earnings help pay the mortgage or improve the property. Even an inherited property may shift in classification if the inheriting spouse allows the couple to live there and uses marital money for the property’s expenses. In many states, if there is extensive commingling, the spouse claiming an asset as separate must trace the funds to prove how much is still separate. If tracing fails, the entire asset may be considered marital.
Business Ownership in Divorce
Business holdings are often more complicated to assess. If one spouse owned a small business before the marriage, its initial value is likely separate property, but any increase in value that can be attributed to the efforts of both spouses may be considered marital property. Imagine a couple, Alex and Jamie, who are divorcing. Alex started a small company before the marriage. During the marriage, Jamie devoted time and resources to expanding the business. In many states, the court would distinguish between the value of the business before the marriage and the growth achieved through marital effort. Courts may then divide the increase in value as marital property, depending on the state’s property division rules.
Evidence and Documentation
The process of determining which assets or debts are marital and which are separate often relies on detailed records, such as deeds, bank statements, and other financial documents. Many states presume that all property is marital unless the spouse who claims it is separate can prove otherwise. Keeping thorough ledgers and preserving purchase records is pivotal to this process. In complex divorces, courts sometimes rely on expert witnesses, such as appraisers or forensic accountants, to analyze complicated financial histories.
Community Property and Equitable Distribution
States generally follow one of two approaches to the division of marital property: community property or equitable distribution. In a community property system, each spouse is considered an equal owner of assets acquired during the marriage. Some states that follow this system require courts to divide marital property into equal halves. In an equitable distribution system, courts aim to divide marital property fairly but not always equally. Judges may consider factors such as the length of the marriage, each spouse’s earning capacity, direct or indirect contributions to the household, and any other circumstances that influence fairness.
