Property division, Community Property, Marital Property, Debt division, Divorce
Tracing Non-Marital Interests into New Assets
The Marital Estate
Losing Non-Marital Value
In any divorce case, there is usually a division of assets and a determination of each person's responsibility for debts. Minnesota, like most states, is a "marital property" state. This means that any asset acquired and any debt incurred during the marriage is the asset or debt of both parties.
Wisconsin, by contrast, is a Community property state. that means anything that is owned at the time of the divorce, even premarital assets, may be considered marital and divided.
THE MARITAL ESTATE
In a divorce, the parties divide up what is called the "Marital Estate." The marital estate includes any assets or debts that were acquired during the marriage. 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.
Essentially, the law 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 Click Here.
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.
Certain assets may be excluded from the marital estate which means that they are not divided between the parties. These are called non-marital assets. Any non-marital assets that you possess remain yours and any non-marital assets of your spouse remain his assets.There is a presumption that all marital property should be divided equally. Any non-marital assets are awarded to one party or the other and are not divided.
Under Minnesota Statutes, non-marital property may include:
- Any premarital assets;
- Any assets that were inherited;
- Any gifts to one party but not both;
- Any personal injury funds unrelated to lost wages.
By contrast, Wisconsin laws are much narrower. Under Wisconsin Statutes, marital property is all of the spouse's property except:
- property inherited by either spouse;
- property received as a gift by either spouse; or
- property paid for by funds acquired by inheritance or gift.
Unlike many other states, Wisconsin does not consider assets that were purchased before the marriage as non-marital if they do not fall within these three exceptions. However, an
equal distribution may be altered by the court based on certain factors which include the assets owned before the marriage and contribution to the acquisition of assets. Specifically, Wisconsin statutes allows a Court to modify an otherwise equal division after considering the following:
- the contribution of each spouse to the acquisition of the marital property, including the contribution of each spouse as homemaker;
- the value of each spouse's separate property;
- the length of the marriage;
- the age and health of the spouses;
- the occupation of the spouses;
- the amount and sources of income of the spouses;
- the vocational skills of the spouses;
- the employability and earning capacity of the spouses;
- the federal income tax consequences of the court's division of the property;
- the standard of living established during the marriage;
- the time necessary for a spouse to acquire sufficient education to enable the spouse to find appropriate employment;
- any premarital or marital settlement agreements;
- any retirement benefits;
- whether the property award is instead of or in addition to maintenance;
- any custodial provisions for the children; and
- any other relevant factor.
It is important to note that the court may also divide any of the spouse's separate property in order to prevent a hardship on a spouse or on the children of the marriage. [Wisconsin Statutes Annotated; Sections 766.01 to 766.97 and 767.255].
LOSING NON-MARITAL VALUE
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:
Co-mingling. 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.
Marital Improvements. 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.
Appreciation. 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 asset.
TRACING NON-MARITAL VALUE
Non-marital assets may 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.
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