What Is Marital Property?

Take a look around your home. Most people have trinkets and items around that have emotional significance to them. There are also a few items that have significant financial value. How do you decide who gets each item when divorcing? The court steps in to assist couples struggling to make these decisions. Understanding the laws that dictate property distribution can help married couples know what to expect during legal separation and divorce.

What Is the Difference Between Marital Property and Separate Property?

Marital property includes assets and debts that either spouse acquires during the marriage. These assets are considered jointly owned. Common examples of marital property include a marital home purchased together, joint bank accounts, retirement accounts, vehicles or real estate bought, income earned by either spouse or credit card debt from a joint credit card.

Separate property includes assets or debts one spouse owns before the marriage or acquired individually during the marriage under specific circumstances. Common examples of non-marital property include property owned before the marriage, gifts, inheritance, personal injury settlement, and proceeds from separately owned property.

Generally, courts view separate property as the sole property of the spouse who owned the property before the marriage. Spouses need to be careful, as separate property can become marital assets. If the separate property is commingled with marital funds, it becomes part of the marital property. A separate inheritance fund can become marital if deposited into a joint account. Spouses can change the status of the property by agreement, such as a prenuptial or postnuptial agreement.

Cary J. Mogerman, a family law attorney at Carmody MacDonald in St. Louis, Missouri, explains the importance of understanding how to keep marital property separate from personal property to ensure it retains its status. “If you have an asset that you know otherwise qualifies to be nonmarital—because you received it by gift or inheritance, you owned it before the marriage, or you acquired it in exchange for one of those types of property—it’s best not to change it in any way in terms of title. You want to keep a pristine title in your name alone or however you received it. You don’t want to commingle marital assets with that separate asset. Don’t use marital income to improve the separate property, as it might create a marital interest.”

What Is Community Property vs. Common Law Property?

In community property states, most property acquired during the marriage is considered equally owned by both spouses (50/50 split). Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska allows couples to opt into community property rules through a written agreement. With this approach, each spouse has a one-half interest in the real property acquired during the marriage.

Common law states follow law that states property acquired during the marriage is owned by the spouse whose name is on the title or who earned it. Property is divided equitably rather than equally based on factors like income, contributions to the marriage, and future needs. The majority of states follow this approach.

A few states take a hybrid approach that blends elements of community property and equitable distribution states. Some courts treat certain assets as marital and others as separate under distinct guidelines.

Valuation of Marital Property

Courts value marital property differently depending on the type of property. For real estate, market appraisals by licensed professionals provide an estimated value. A comparative market analysis (CMA) can assist with estimating value by looking at the recent sales of similar nearby properties. Personal property can be valued by looking at their fair market value. The original purchase value or emotional worth is not used. Instead, a professional appraisal may be required. This approach is used for items like vehicles, jewelry, watches, or art. Some financial accounts require valuation. Actuarial valuations calculate the present value of pensions and other deferred compensation plans. Financial experts may need to assess the account’s value on the date of separation or divorce.

Obtaining accurate valuation is a must for an equitable division of property. Working with divorce attorneys and financial experts ensures accurate valuations, equitable distribution, and minimal financial losses. A lawyer can help overcome some common challenges of obtaining an accurate valuation. Fluctuating market values, especially for real estate and investments, can make getting an accurate market value difficult. Some couples have complex assets like business ownership, stock options, or intellectual property. These assets require financial experts to assess their values accurately. If one spouse attempts to hide or undervalue assets, more extensive forensic research can be required to accurately calculate the marital assets.

In addition to the asset value, tax considerations must be accounted for. Selling or transferring ownership could result in capital gains taxes or unnecessarily higher tax liabilities. Finally, a divorcing couple may choose to hire their own appraisers, which can result in value differences. This can lead to additional negotiation or court intervention to determine an official single value.

Marital Debts and Liabilities

In addition to assets, a couple can also acquire debts during marriage. Many debts are considered marital obligations regardless of whether they are acquired by one or both spouses. Examples of marital debts include mortgage payments, credit card balances, auto loans, and personal loans.

How debts are divided during divorce will depend on the laws the state follows. In community property states, marital debts are split 50/50 in an equal division between the spouses. It does not matter who incurred the debt. In a common law state, the debts are divided equitably. The court considers factors like earning potential, income, and the debt’s purpose. The debt’s purpose is significant. If the debt was incurred for the sole benefit of one spouse, then that is the individual responsible for the debt. In addition, debts that are solely in one spouse’s name stay with that spouse unless they can prove the debt was for the benefit of both spouses.

There are some challenges when dividing debts during the divorce process. Comingled debts happen, where one spouse combines a previously separated debt into a marital one. This can happen through debt consolidation. Another common occurrence is when one spouse hides debt from the other spouse. It could be a separate debt or a marital one.

Determining Marital Property in Divorce Proceedings

Divorce law wants to ensure each spouse leaves the marriage with the ability to support themselves and maintain their standard of living. The court will follow the state law that dictates how the marital estate gets divided. However, a legally enforceable prenuptial agreement could impact this. Courts typically uphold valid agreements, provided they are fair and entered into voluntarily.

The court’s approach to dividing the property will be case-by-case. The court will consider potential tax consequences and limit additional tax liabilities by avoiding unnecessary ownership transfers. It will issue a Qualified Domestic Relations Order (QDRO) for retirement plans.

If the divorcing couple has children, the court will consider factors that apply to the children when dividing assets. One spouse may be ordered to pay spousal support in the form of alimony or pay child support. The spouse with primary child custody may request to retain ownership of the marital home to maintain daily consistency with the children.

Hiring divorce attorneys can help a contentious couple divide their assets. Attorneys navigate state-specific laws to ensure a fair division of assets and liabilities. They advocate on behalf of their client’s interests. If there is a prenuptial or postnuptial agreement, the attorney can advocate for its use or argue why it is unenforceable.

Mogerman points out a common unexpected situation regarding marital gifts and how they are handled during a divorce. “Gifts between spouses are separate. So, if I gave someone an expensive ring to commemorate an occasion, a birthday, or even a wedding ring or engagement ring in Missouri, those are the acts of making a gift to the other party. Even if the asset was bought with marital money, the act of gifting makes it a separate asset and not a part of the marital property.”

Getting Legal Advice

Property division during a divorce is rarely straightforward, particularly when laws and definitions vary from state to state. Marital property laws play a critical role in determining how assets and debts are divided during a divorce. From distinguishing between marital and separate property to navigating state laws on distribution, these details can significantly impact your financial future. Whether dealing with community property rules or equitable distribution, the process often involves intricate calculations and potential tax consequences. Consulting with a divorce attorney ensures that your rights are protected and you have expert guidance through property valuations, debts, and agreements like prenuptial or postnuptial contracts.

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