How do I protect myself in the division of assets in a Minnesota divorce?

In a divorce, it is natural to want to protect your fair share of the assets. The first step is understanding Minnesota “equitable distribution” law and which assets will and will not be in play.

There are some proactive things you can do, as well as some “don’ts” that may save you money and regrets. Perhaps it goes without saying but consult an experienced family law attorney before you do anything with your assets in contemplation of a divorce.

Equitable distribution of marital wealth

Minnesota is an equitable distribution state. This does not necessarily mean a 50-50 settlement of everything. But the law presumes that all assets and debts acquired during the marriage will be divided equitably, including:

• Your house and other real estate
• Retirement accounts and other investments
• Vehicles and valuables
• Checking and savings accounts
• A business or professional practice
• Loans, credit card balances and debts

It does not matter which spouse acquired the asset or incurred the debt, or whose name is on the account or deed.  It also does not matter which spouse earned more money or contributed more to the accumulation of assets, such as a 401k or investment account, since all of the income earned during the marriage is presumed to be marital.

Marital vs. non-marital property

Some property can be characterized as non-marital (separate from the marital estate). Examples of separate, or non-marital property, that is not subject to equitable distribution include:

• A portion (or all) of the equity in a house or business that one spouse owned prior to the marriage, even if that asset no longer exists but the proceeds were used to purchase another asset during the marriage.
• A gift or inheritance to one spouse during the marriage.
• Proceeds of a personal injury lawsuit or a portion of such proceeds personal to one spouse.
• The portion of retirement assets each accumulated before marriage along with the market growth on those retirement savings.

Appreciation on non-marital assets is also non-marital in most circumstances but calculating non-marital appreciation on a non-marital asset that includes a marital portion can be tricky.  You should consult with an experienced attorney before reaching any final settlement when dividing such assets.

Beware of commingling assets

Here’s where things get dicey. When non-marital property melds with marital property, it could lose its separate property characterization. For example, a woman sells her townhouse and uses the proceeds to make a down payment on a house with her new husband. In a divorce, she would have a non-marital claim against the equity in their house. But if they refinanced the house and took cash out during the marriage, to the extent that the cash-out invaded her non-marital equity, her non-marital equity or a portion thereof evaporates. Or say the husband inherits $40,000 during the marriage. If he deposits it into joint checking, it becomes marital property unless those dollars can be clearly traced as still existing, versus spent and replenished with marital deposits. Ideally non-marital gifts should be deposited into a separate account, with no marital funds added to that account.  The best strategies for protecting yourself are undertaken long before divorce. Once the ship has sailed on commingling of assets, you cannot get that consideration back.

Tips to protect your financial interests in anticipation of divorce

If you are considering divorce or believe your spouse is, be mindful and deliberate about anything relating to money or assets:

• Regularly monitor joint accounts if you have any concern your spouse may be spending down or moving money.
• Keep your passwords secret and change them periodically.
• Do not get sucked into joint liabilities: no refinancing or new credit lines or credit cards when contemplating a marriage dissolution.
• Do not attempt to transfer assets or hide money.
• Do not take money out of your retirement accounts in contemplation of divorce. You will incur early withdrawal penalties. An attorney can advise on methods, pursuant to divorce, to make withdrawals or transfers without triggering penalties.
• Don’t forget about taxes in the property settlement. If one spouse gets mostly pre-tax assets (such as the 401k), and the other gets the same value but in the form of post-tax assets (such as the house), it’s not an even trade.

Tips to protect your non-marital interests even long before you may contemplate divorce

• Do not use your non-marital assets that you bring into a marriage to pay off your soon-to-be new spouse’s non-marital debt and do not use your non-marital assets to pay off marital debt. Spouses are almost always unable to recover a non-marital asset once it has been used to pay debt.
• Consult with an attorney well in advance of your marriage to determine if an antenuptial agreement is right for you.

A good lawyer is the best protection

Property settlements in Minnesota are final, which means that the courts cannot change the award of property or debt after your divorce is entered.  You should not lightly enter into any final agreement to divide property and debts. With the advice of a knowledgeable divorce lawyer, you can avoid big mistakes and retain your share in the equitable distribution of the marital pie and your portion of any non-marital assets you may have.