Understanding the Financial Aspects of Marriage and Divorce
In general, all property is presumed to be marital property unless an exception is established. These exceptions include:
- Property that was owned by one of the spouses prior to the marriage
- Property that is acquired as a gift or through inheritance
- Property that is designated as non-marital property in a prenuptial agreement or other legal instrument signed by both parties
- Property acquired after a legal separation
Property falling into one of the categories above would likely be deemed as non-marital or “separate” property and is not subject to the distribution process during a divorce.
However, distinguishing between marital and non-marital property can get quite tricky.
Marital property that is acquired by converting non-marital property now has a community interest and is subject to the normal property distribution process. A marital home for example, that is purchased with proceeds from selling non-marital stock becomes part of the marital assets. Furthermore, once the home is purchased, any improvements and additions to the home are typically made with marital funds – that is, income earned after the marriage and thus considered as community property.
To preserve the non-marital interest, the spouse must be able to clearly track the non-marital funds through receipts, bank statements, etc. But the more the non-marital property is “comingled” with the marital property, the more difficult it becomes to separate the two.
Non-marital funds deposited in a joint bank account for example would be difficult to trace since both parties are making deposits and withdrawals from the account. At some point, the initial non-marital deposit is absorbed into the marital funds and without a legal agreement between the parties acknowledging the separate property, it is likely that the account will be treated as community or marital property, regardless of who deposited what.
To protect your non-marital property, it is important to keep it separated from the community assets. A separate bank account for example, will distinguish that inheritance money from marital funds. Just remember that any income you earn during the marriage from normal wages and the like is considered to be marital property. Depositing these funds into your separate account would still be considered comingling funds, even though the money was earned by you.