Separate Property In A Divorce

Separate Property In A Divorce

Posted on March 6th, 2019

In a marriage, commingling happens when money belonging to one spouse is mixed with the funds of the other spouse. A couple’s assets and property are generally divided into two categories: marital or separate property. In the context of marriage and divorce, commingling refers to instances where separate property is mixed with marital property, meaning the separate property can’t be distinguished from the marital property.

Marital property is property and income acquired during the marriage by either spouse. Specifically, any earnings, retirement contributions, homes, or cars that are purchased or earned during the marriage by either spouse and the profits, rents, dividends, income from such community property. During divorce proceedings, all of these items are subject to division. Marital property can be divided equally (50/50) or equitably (fairly).

Generally speaking, separate property includes all property that was owned or acquired by either spouse before the marriage and the rents, profits, dividends, income from that separate property.  Gifts and inheritances received by a party during the marriage are separate property.

In a divorce, separate property is generally awarded to the spouse who owns it. However, when spouses commingle separate property, it can lose its separate status.

An example of commingling can be: a house that you solely purchased prior your marriage is considered your separate property. However, if you get married and use marital funds to pay the mortgage, remodel, or make other improvements, your spouse will gain an interest in the value of the home.

Because the house has been co-mingled with marital assets, it may be treated as marital property—not separate property—during a divorce or some portion separate and some portion marital property.  

Commingling only begins to have legal effects when the separate property can no longer be distinguished from the marital property, like purchasing a home. After this occurs, the separate property can be changed to marital property and if a divorce happens, that property will be divided equally between the parties involved.

There are a couple options to prevent your separate property from being commingled. A prenuptial agreement will delineate who will received which assets in the event of a divorce. Most agreements are upheld, regardless of whether spouse end up commingling their property.  

If a prenuptial agreement isn’t an option, you can take proactive steps to protecting your separate property during the marriage. Avoid using marital funds to pay the mortgage or complete renovations on the house. If you have no choice talk to an attorney about an agreement that at least gives the separate property back to the person who started with it in the event of a divorce. Other options to avoid commingling is to keep your name alone on any deed to separate property owned. Lenders often in a refinance have a party add their spouse to the title when the mortgage is obtained by both parties. Think about keeping a separate bank account. You can deposit funds into a joint account that you would like to use as marital funds while also keeping a separate account.

One way to look at commingling property it to think of a scrambled egg. The more a couple commingle their separate and marital property, the more difficult it is to separate each asset during a divorce proceeding.

Commingling various properties can lead to confusion in a divorce. Spouses can settle any disagreements over commingled funds with marital contracts, like a prenuptial agreement and can agree about the division of commingled funds.

The best thing a married couple can do is to not commingle property or funds. If your marriage were to end in divorce it will be up to one or the other to prove that property is marital property and subject to division.

One of the most common contested issues is a divorce is when the home was purchased prior to marriage by a party, but that party wishes to refinance to obtain a lower interest rate.  The title company will require the other spouse to either be on the new loan and the title, or it will require a Quitclaim Deed by that other spouse. Without a clear agreement as to why the spouse was on the joint tenancy deed or why they quitclaimed off, the best thing is to enter into a separate agreement at the time of refinance as to how the equity in the home would be handled in the event of divorce instead of being subject to the uncertainty and cost that will face the parties without an agreement at the date of divorce.

Unless you’ve kept in-depth records on purchases it can be almost impossible to prove or disprove that property is actually separate property.  You need to be able to trace the date that you received the separate property and the source of it. Then you need to trace exactly where the funds were deposited.  Then you have to not deposit any marital funds into the separate account.

The tracing proceeds can be lengthy, complicated and expensive, and the longer that a separate property asset has been titled in joint tenancy the bigger the risk of it becoming marital property