Divorce and Assets: Marital Versus Separate Property
One of the trickiest issues a couple going through divorce deals with is determining whether an asset is marital property or separate property.
Divorce involves dividing the family’s property. This process can be complicated and contentious, especially if there are significant assets to be considered.
“Property” includes homes, vehicles, boats, furniture, artwork, and jewelry, as well as cash, savings, investments, securities, retirement accounts, business licenses and permits, and more. This post focuses on how marital and separate property are dealt with in New York, an equitable distribution state.
Definition of Marital Property
Property acquired from the date of the marriage through the date of separation is marital property. Property acquired during the marriage is considered marital even if the title to the item is held in one name, such as a vehicle, a retirement account, or a pension.
Advanced Degrees as Marital Property
A January 2016 NYS law eliminated enhanced earning capacity as a marital asset. This means the lifetime value of a license, professional degree, career enhancement, or celebrity goodwill no longer needs to be calculated. However, enhanced earning capacity developed during the marriage through licensing or advanced degrees can still be factored into the judge’s determination of post-divorce spousal maintenance, equitable distribution, or for making a spousal maintenance award on income in excess of the new income cap.
Definition of Separate Property
Separate property is defined as those assets acquired by each spouse before they married each other. You and your spouse may exclude property from the marital estate via a prenuptial or post-nuptial agreement. Without such an agreement, there is a presumption that property acquired during the marriage is marital property.
Separate property as defined below belongs to the designated individual. If the courts are involved in your divorce, they have no authority over this property.
Separate property includes:
- Property acquired by gift, legacy or descent from someone other than the spouse, either before or during the marriage.
- Property acquired in exchange for property acquired before the marriage or in exchange for property acquired by gift, legacy or descent.
- Property acquired by a spouse after a Judgment of Legal Separation.
- Compensation you received for personal injuries during the marriage not related to loss of wages or earning capacity during the marriage.
- The increase in value of separate property (such as stock appreciation, interest, or real estate appreciation).
- Any property awarded to a spouse from the other spouse via a judgment resulting from a civil suit.
- Property acquired by either spouse before the marriage.
Definition of Equitable Distribution
Throughout the divorce process, you will have opportunities to decide with your spouse how you want to split your property between yourselves. When the divorce court is processing your divorce decree, the judge will usually accept your written separation agreement on how you want to divide your property.
If you cannot reach an agreement with your spouse, the court will have to step in to make decisions for you, including what is and isn’t marital property and what the equitable distribution plan will be. This doesn’t necessarily mean the court will create a 50/50 split of your assets. Instead, the judge will strive for an equitable outcome, considering over a dozen factors in making the decisions. While the court can decide what is separate or marital property, the court can include only marital property when deciding the equitable distribution.
How to Divide Up Marital Property
The process to determine who takes what has four basic steps.
- Identify all assets held by either or both of you. Don’t forget to consider your digital assets.
- Categorize each asset as marital or non-marital property.
- Assign a value to all assets.
- Establish a plan for division of the assets in accordance with NYS laws.
When Marital and Separate Property Are Commingled
The most complicated part of identifying separate from marital assets is when separate assets are commingled with marital assets. If you and your spouse are going to court to establish equitable distribution of marital property, what you believe to be separate property can lose its separate property status if it has been combined, or commingled, with marital property. This is where property issues can become very murky and require time to resolve.
Generally, if you mix or commingle separate property with marital property, the court may consider part or all of that separate property to be marital property when determining the equitable distribution.
The issue of commingling property often arises during divorce mediation. Your divorce mediator will help you work through them.
Examples of Commingling Separate and Marital Property
- You own your own home before you marry, and it becomes your marital residence: A portion of the property may be considered marital in the future. That is because, in most cases, “marital money” went into paying for the mortgage, taxes, repairs and the like. Determining the separate from marital portion is part of the mediation or litigation process.
- You own a property prior to marriage that you want to remain separate, such as a cabin in the woods or rental property: You can maintain the separateness by remaining the sole owner and making sure your spouse makes no financial investment in the home. If your spouse provides funds for taxes, repairs, or renovations, a portion of that property could turn into a marital asset.
- You and your spouse purchase a home together after marriage, and she contributes a portion or all of a separate property (e.g., an inheritance) towards a down payment: That contribution to the purchase will normally remain your spouse’s separate property. She may be able to get that contribution back after the marital house is sold.
- You inherit stock and deposit it into a jointly-owned investment account that both you and your spouse worked to grow: Generally this dilutes the separate property. The majority, if not all, of the funds may be considered marital property, and it can be divided up as such.
- You have a bank account from prior to the marriage in your name, and after the marriage you add your spouse’s name: By adding his/her name, there is now a presumption of a gift to your spouse of one-half the value of the account.
- “Separate and Community Property During Marriage: Who Owns What?“
- “New York State Equitable Distribution & Divorce: FAQs“
- “3 Tips For Dividing Marital Property During Divorce“
- “Divorce & Property Rights“
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This blog and its materials have been prepared by BJ Mediation Services for informational purposes only and are not intended to be, are not, and should not be regarded as, legal or financial advice. Internet subscribers and online readers should not act upon this information without seeking professional counsel.