In a divorce, the parties divide up what is called the
"Marital Estate." The marital estate includes any assets or debts that the
parties own at the time of the divorce. Each spouse is deemed to have an
equal interest in marital assets or debts.
This true no matter how property is titled or held and no
matter which spouse's job paid for the asset or which party incurred the debt.
That means the marital estate includes a 401 K account or a credit card debt
that is in your spouseís name alone. In fact, marital property is inclusive and
encompasses 401K plans, stock plans, stock options, real estate, frequent flier
entitlements, bank account proceeds, couches, chairs, cars, utility debts,
credit card debts and any other form of asset or liability.
How those assets are divided may vary from state to state
but no longer depend greatly on whether your State has Community Property laws
or Common Law Property laws. The laws are substantially similar in this day and
age and both allow for an equitable division of the marital estate. It should
be emphasized that an equitable division does not mean equal and means, instead,
what is fair. What is "fair" obviously can be an arguable question and is
guided by the individual laws in each state.
An equitable division views marriage as a civil
partnership with many of the characteristics of a business partnership. When you
join a business general partnership, each partner has an equal interest in the
ownership of the business and is exposed equally to the liabilities of the
partnership. This is true even if one partner incurs the debt on behalf of the
partnership or one partner performs all the work making the partnership a more
valuable asset. The best way to determine what debt exists is to run a credit
report. To run your credit report
Where there are property disputes in divorce, Courts are
not particularly fond of hearing those issues. This particularly true when the
dispute involves assets that are primarily household furnishings. As a result,
courts often render very unsatisfactory Orders related to the division of
household furnishings. In fact, in one memorable case, the Judge gave one
spouse half of the dining room table and half the chairs and the other spouse
the other half. In the end, the judge stated, "if you donít like what I did
here, you will go out in the hall and find a better solution." This is certainly
an aberration and not the norm. However, it does underscore the Courtís general
dislike in dealing with property issues.
There are any number of ways to creatively divide
household furnishings and personal property when disputes occur. In some cases,
the parties may make a list and alternately choose an asset. In other cases,
parties may bid on each item of property and the highest bidder both receives
the asset and has that value credited to him or her as part of the property
division. This may result in an payment from one spouse to the other to equalize
the value of the assets received by each. In yet other cases, the one party may
create two lists of assets and the second party then has first choice which list
and assets he/she will receive.
Mediation is always a potential option for such divisions.
Some states, not all, have classifications of property
that are exceptions from the marital estate that is divided. These assets are
often called non-marital assets. Any non-marital assets that you possess remain
yours and any non-marital assets of your spouse remain his/her assets. Among
States that take this approach, some listed non-marital classifications include:
- Premarital. Any
asset acquired before the marriage (if the asset was encumbered by a loan
that was paid off during the marriage, it may only have a partial
- Prenuptial Exclusions.
An asset excluded by a valid prenuptial agreement;
- Personal Injury Proceeds.
Personal injury settlements are generally considered personal to
the injured party and are non-marital in nature. Some states also include
Social Security benefits, Worker's Compensation and Disability in this
- Inheritance. Any
proceeds or assets from an inheritance;
- Gifts. Any asset
acquired as a gift to one, but not both parties.
- Property Acquired After
Separation. Any assets or property acquired after a decree of
The list above is not meant to be exclusive or
comprehensive and may vary from State to State. It is important to recognize
that all assets are considered part of the marital estate unless proven
otherwise by a "preponderance of the evidence." This places a
significant burden on any person making a non-marital claim. It is essential
that any and all documents including documents of title, receipts, or canceled
checks that support your non-marital claims must be provided. Any failure to
provide documentation may result in the division of the asset in the divorce.
It is possible for non-marital assets may have both a
marital and non-marital value. In some cases, non-marital assets may lose their
non-marital characteristic. This can occur in several ways:
If non-marital proceeds are co-mingled with marital proceeds
so that is becomes difficult to identify the non-marital asset, the non-marital
characteristic may be lost. For example, placing non-marital proceeds in a joint
bank account may not immediately eliminate a non-marital interest. However, if
marital proceeds are added to the bank account or if proceeds from the account
are paid out for regular living expenses, it is more likely that the non-marital
value will diminish since it is impossible to determine which proceeds came out
first - the marital proceeds or the non-marital proceeds.
Additionally, spending marital money (any money
earned by either party during the marriage) to improve a non-marital asset may
also create a partial marital interest in an otherwise non-marital asset. The
increase in the value of the asset attributable to the improvement is likely to
be considered marital.
The Courts make a distinction between "active" and "passive" appreciation.
Passive appreciation of a non-marital asset remains non-marital. Passive
appreciation occurs when an asset increases in value without any action
by the parties. For example, if the value of real estate increases without the
parties improving the property, it is considered passive. Active
appreciation is a marital asset. Active appreciation occurs when the
value of an asset increases because of an act by the either of the parties
during the marriage. Capital improvements to real estate during a marriage may
create a marital interest since a capital improvement is likely to add to the
propertyís value. Manipulating a stock account or transferring a mutual fund
from one account to another resulting in an increase in value may also be
"active appreciation" which creates a marital interest in an otherwise
Non-marital assets may often be "traced" into later
acquired assets giving the party with the original non-marital interest a
non-marital interest in the new asset. For example, if one spouse owned a
vehicle before marriage and that vehicle is later traded in for a new vehicle
during the marriage, that party may be able to trace a non-marital interest in
the new vehicle. Tracing is really the process of establishing a sufficient
paper trail to claim a non-marital interest in a subsequently purchased asset.
Often, presenting a persuasive property case depends on
clear cut documentation, and expert testimony. It is important to consult with a
lawyer regarding significant non-marital issues.