Marital Property vs. Separate Property In A Divorce: Part Two

The easiest example of the valuation of separate property is a bank account that on the date of the marriage has $100,000 in one spouse's name and throughout the marriage the account is never jointly titled and the only changes in value are due to the gains or losses, interest or dividends that occur solely due to the market. Another simple example is a painting on a wall that gains value due to the age and reputation of the artist but not because of anything done by the owner. Therefore, the gains are called "passive" and belong solely to the titled owner as separate property.

If a house was owned before the marriage by one spouse and remains in that one spouse's name throughout the marriage (separate property) but during the marriage the value of the house has increased an inquiry can be made to determine what was the cause of the increase. Was it due to the market getting hot or cold or was it because of improvements made to the house using marital funds such as renovations and expansions? Another way where some of the equity in the "separate property" house is deemed marital is the payments made to reduce the mortgage during the marriage. If the mortgage at the time of marriage was $300,000 and at the time of divorce is reduced to $200,000 a claim may be made to share in the $100,000 that was paid off during the marriage even though the rest of the house value is separate property.

If one person owned a plumbing business that had operated for 5 years before the marriage and now 10 years later the business has grown in size, profits, equipment, accounts and other assets an inquiry can be made to compare the value of the business at the time of marriage and the value of the business upon the commencement of the divorce. The contributions and reasons for the expansion will be examined to determine what credit, if any, should be given to the non-owner spouse. Contributions are not limited to financial contributions. Efforts as the homemaker or non-economic contributions are often given significant value when proven.

An example of separate property that is "commingled" with martial property is when at the time of marriage an account that is in only one spouse's name is worth $100,000 but during the marriage new money is added to the account and money is also taken out and added and taken out so many times that it becomes difficult, if not impossible, to sort out what was used first, second or third. After all money in an account does not look different whether it is old or new money. If at the time of the divorce the account has $135,000 should the first person get a credit for $100,000? What if the account only has $75,000 should the first person get a credit for all of the money? What if the original $100,000 was spent almost completely before new money went into the account? So the examples and illustrations can lead to different results and proper fact development will be critical.

The next blog will illustrate what may happen when separate property is put into both names thus "transmutation" occurs and now what was once separate is now marital but what credits if any should be given? Can the Court find yet another exception even after both names are on the asset? The answer is "yes".

These blogs illustrate how complicated and technical the application of rules and exceptions to the equitable distribution of property often can be. It is highly recommended that experienced matrimonial counsel be retained to properly address these issues.