In divorce proceedings, certain assets are generally considered "separate property" and are therefore protected from being divided between spouses. These assets primarily include property owned by one spouse before the marriage and individual gifts or inheritances received before or during the marriage, provided they have been kept distinct from marital assets.
Understanding Separate vs. Marital Property
When a couple divorces, their property is typically categorized into two types: marital property and separate property. Marital property, also known as community property in some states, generally refers to all assets acquired by either spouse during the marriage, regardless of who earned the money or whose name is on the title. This property is subject to division between the spouses.
In contrast, separate property is generally exempt from division. This distinction is crucial for understanding what assets cannot be "touched" or divided in a divorce.
Key Categories of Protected Assets
The assets most commonly protected from division in a divorce fall into specific categories:
Premarital Property
Any assets a spouse owned before the marriage are typically considered their separate property. This includes:
- Real estate (e.g., a house purchased before the wedding)
- Bank accounts and investments established prior to marriage
- Personal belongings (e.g., jewelry, art, or vehicles owned beforehand)
- Businesses or business interests owned exclusively before the marriage
For premarital property to remain separate, it's essential that it not be commingled with marital assets or transmuted into marital property during the marriage.
Gifts and Inheritances
Assets received by one spouse as a gift or inheritance are usually considered separate property, regardless of when they were received (before or during the marriage). This applies to:
- Inheritances: Money, property, or other assets received through a will or trust from a deceased individual.
- Individual Gifts: Presents given specifically to one spouse (e.g., a family heirloom from a parent, or money given to only one spouse). Gifts given to both spouses, such as a wedding gift from a mutual friend, are typically considered marital property.
Similar to premarital property, the key to maintaining the separate nature of gifts and inheritances is to keep them segregated from marital funds and property.
Factors That Can Jeopardize Asset Protection
While premarital property, gifts, and inheritances are generally protected, certain actions during the marriage can convert separate property into marital property, making it subject to division.
Commingling
Commingling occurs when separate property is mixed with marital property to the point where it loses its individual identity. For example:
- Depositing an inheritance into a joint bank account that is also used for marital expenses.
- Using funds from a premarital savings account to pay for a down payment on a jointly-titled marital home.
- Mixing separate investment funds with marital earnings in a single investment account.
Once commingled, it can be challenging to trace the separate portion of the funds, and a court may deem the entire amount to be marital property.
Transmutation
Transmutation is the process by which separate property becomes marital property, often through an intentional act or agreement. This can happen if:
- A spouse adds their partner's name to the deed of a premarital home.
- Separate property is used to purchase new assets that are then titled in both spouses' names.
- A written agreement (or sometimes implied actions) indicates an intent to transform separate property into marital property.
Appreciation of Separate Property
The appreciation in value of separate property during the marriage can sometimes be considered marital property, particularly if the increase is due to the efforts or contributions of either spouse during the marriage. For example, if a premarital business significantly grows due to the active management and efforts of both spouses during the marriage, a portion of that increased value might be deemed marital.
Protecting Your Separate Assets
To maximize the chances of keeping assets separate during a divorce, consider these strategies:
- Maintain Separate Accounts: Keep separate property funds in individual bank and investment accounts, distinct from any joint accounts used for marital expenses.
- Keep Meticulous Records: Maintain clear documentation, such as purchase agreements, inheritance documents, gift letters, and bank statements, to prove the separate origin and non-commingled status of assets.
- Consider a Prenuptial or Postnuptial Agreement: These legal agreements can explicitly define what property remains separate in the event of a divorce, overriding default state laws and providing clarity.
- Seek Professional Guidance: Consult with a divorce attorney who can provide specific advice tailored to your state's laws and your unique financial situation.
State Law Variations
The rules governing property division in divorce vary significantly by state. Most states follow either an equitable distribution model or a community property model:
| System | Description | How Separate Property is Treated |
|---|---|---|
| Equitable Distribution | Assets acquired during the marriage are divided fairly, but not necessarily equally, based on various factors. | Separate property (premarital, gifts, inheritances) generally remains with the original owner, provided it hasn't been commingled. |
| Community Property | Assets acquired during the marriage are generally considered equally owned by both spouses (50/50 split). | Separate property (premarital, gifts, inheritances) also remains with the original owner and is not part of the community estate. |
Regardless of the system, the fundamental principle across all states is that separate property, if properly maintained, is protected from division.
Understanding the distinction between separate and marital property is key to navigating asset division in a divorce. By taking proactive steps to identify, document, and segregate separate assets, individuals can better protect what is rightfully theirs.
