Marital Property Law: Expert Guidance

If you’re planning to get married, you and your partner likely have discussed how you will combine your property. For instance, one of you may decide to give up your apartment or sell your condo, and you may decide to hold a giant garage sale to get rid of extra kitchen gear or furniture. But it also might be wise to consider how this property may be re-divided in the event the marriage ends, or generally consider the basics of managing your marital property. When a couple gets divorced, marital property (that which was acquired during the marriage or otherwise shared) gets divided according to state marital property law. While a few states consider “community property” laws resulting in a roughly 50/50 split of marital property, most states use an “equitable distribution” procedure in which the needs and assets of each party are considered.

Regardless of your state’s laws and your family’s particular situation, the following suggestions will help you decide how to best manage your marital property. Consider entering into a prenuptial or premarital agreement prior to marriage, to make clear which property is not subject to division upon your death or divorce. Maintain accurate and complete books and records to establish the separate nature of property you wish to keep independent from the marital estate — such as property held by you prior to marriage, or property received by you alone as a gift or inheritance during the marriage.

Continue to keep all separate property separate throughout the marriage if you are concerned about keeping it in your family (or as your personal asset) upon your death or divorce. Generally, this means you should not “commingle” property you owned prior to marriage with property you and your spouse acquire during the marriage, or it may become difficult — if not impossible — to legally determine which is which.

Be aware that the increase in value of nonmarital property may be considered marital, so that each spouse is entitled to a share of the increased value upon divorce or the death of the property owner. This is especially if the increase (or “appreciation”) in value is considered “active” rather than “passive.” Passive appreciation is, for instance, the increase in value of a bank account as a result of interest earned, or the increase in property value that results from standard inflation. Active appreciation, on the other hand, occurs as a result of some form of actual effort, such as by repainting rental property or actively managing a stock portfolio.

Only use your nonmarital property to purchase other property that you want to be considered nonmarital property. In other words, a boat that you pay for with money you had before marriage and kept in a separate account after marriage will be considered nonmarital property, but if your spouse pays for part of it, or even helps maintain it, the boat could lose characterization as nonmarital property. Make sure you keep separate the proceeds acquired from any personal injury case during marriage, if you want those funds to retain their nonmarital property character. The money you get from a personal injury lawsuit is yours alone, except for any portion that reimburses you for your lost income, or compensates your spouse for the loss of your services or companionship.

Don’t use nonmarital funds to pay off a marital debt, or those funds could lose their nonmarital character. Don’t make deposits of income earned during the marriage into nonmarital accounts. Income earned during marriage is usually considered marital property, and depositing that income into nonmarital accounts can result in “commingling,” so that the nonmarital account is no longer construed as separate property.

Don’t open a joint bank account with nonmarital funds, even if you intend to keep track of which portion is nonmarital. It is much more prudent to maintain separate accounts if you wish to keep nonmarital assets separate.

Don’t assume that just because you owned property prior to marriage, no portion of it will be deemed marital property. For example, if the home you owned before marriage increases in value during the marriage as a result of you and your spouse’s efforts to maintain and improve it, your spouse may be entitled to a portion of that increase in value. Don’t assume that a business you owned prior to marriage remains entirely a nonmarital asset after marriage. If your business or professional practice increases in value throughout the marriage due in part to your spouse’s contributions, your spouse may be entitled to a share of the increase in value upon divorce or your death. Such contributions can be obvious — i.e. bookkeeping or entertaining clients — but they can also be more subtle — i.e. taking care of the home and children so that you can focus on running the business.