A Key Step in Divorce

In a divorce, classification of assets is a preliminary to distribution of property. Everything a couple owns and owes is classified into one of two categories — marital or separate property. In twelve states — the so-called all property or kitchen sink states — both kinds of property are subject to distribution. In most states, however, only the marital property is divided.

After the assets are classified, they can be divided and distributed based on the applicable law in the jurisdiction where the couples divorce. Twelve states are all property; nine states are community property; and the rest are equitable distribution states.

Couples who want to avoid making lawyers rich should remind themselves that courts approve any reasonable division of property that the divorcing spouses fashion.

Generally, marital property is everything a couple earned or acquired during the marriage; generally, separate property is property that belongs only to one party, such as property owned before the marriage, gifts and inheritances, property acquired using separate assets.

That sounds easy but, needless to say, deciding what is marital property and what is separate property often becomes contentious. Problems arise when one party places separate property in joint names, when a spouse commingles separate property in an account that contains marital property, or in the case of a business, when one spouse made active contributions to the growth of a business the other owned before the marriage.

In general, however, when separate and marital funds are commingled, regardless of which came first, the resulting mixture is presumptively marital. The spouse who made the separate contributions can establish a claim to it by proving the nature and amount of the separate contribution.

Much, if not even most, separate property becomes commingled to one degree or another during the life of a marriage. Moreover, states treat the appreciation of assets, separate and marital, in different ways. Some states make a distinction between active and passive increases in income from separate property and active and passive appreciation in the value of separate property.

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