We have previously discussed that the distribution of assets in New York is based on Equitable Distribution. In equitable distribution, marital assets are divided in a way that is fair and equitable. Fair and equitable doesn’t necessarily mean that assets are divided evenly. This is a concept that many people may not fully understand, and it isn’t helped by the media reporting on celebrity divorces. Many of these celebrity couples get married in California where the laws related to the distribution of marital assets is based on community property, which laws divide the assets evenly among the spouses.
The keyword here to note is that the assets divided are “marital assets.” There are conditions in which a spouse may protect real and personal property from being divided during the equitable distribution phase of a divorce. While there are ways to keep certain assets separate, there are also times when assets may have been separate property, but over the course of time, or due to specific actions have become, or can be argued to have become marital assets subject to equitable distribution.
We will discuss some of the ways you can protect your real and personal property as separate property and some ways separate property may actually become, at least partially, marital property.
Pre or Postnuptial agreements
Probably the easiest way to protect certain assets from being considered marital assets is to specifically put it in writing. Pre and postnuptial agreements are often used as tools to outline which assets brought into the marriage by each of the spouses will remain separate property.
While it is a good idea to put things on paper in the form of a formal agreement, that agreement has to be carefully crafted and carefully reviewed by attorneys representing each spouse. In New York, a judge may set aside an agreement if they find they agreement to be unconscionable, signed by one of the spouses under duress or was coerced to do so or if the agreement was based on incomplete or inaccurate information.
Property Owned Prior to Being Married
Property individually owned by each spouse prior to being married constitutes and remains as separate property not to be divided as marital assets during a divorce. However, to be considered separate property, in the absence of a pre-nuptial agreement, the property must remain separate from any marital assets or it may be argued that due to transmutation or comingling, the separate property has since been converted into marital assets. Unfortunately, many people are unaware of the requirement to keep assets separate until it is too late and the chances of a court finding that previously separate property is now a marital asset is significantly increased.
Separate Property Acquired During a Marriage
While most assets acquired during a marriage are considered marital assets, there are times when assets acquired may be considered separate property. These times include:
- Property you obtained by inheritance or gift from someone other than your spouse during the marriage;
- Compensation you received for personal injuries during the marriage not related to loss of wages or earning capacity during the marriage;
- Property you acquired in exchange for your separate property during the marriage;
- Any increase in the value of your separate property, except to the extent that the increase is due to contributions or efforts of your spouse or self during the marriage;
The fourth bullet point includes a huge “except.” If you own property, and that property increases due to passive appreciation, then the property remains separate. However, any improvements made by your spouse or even yourself during the marriage can cause the transmutation from separate property to a marital asset.
Some examples of ways that separate property may be transmuted to a marital asset include:
- If real estate owned by one spouse prior to marriage becomes the family home or is used by the family as a vacation home and capital improvements are made, then the property may be considered a marital asset since it is being maintained by both spouses using marital assets to make improvements, pay the mortgage, or otherwise maintain or improve the property.
- If a spouse owns artwork or antique furniture prior to marriage, they may maintain such valuable assets as separate property. If the other spouse helps to maintain or renovate such items and marital assets are used for things like renovation or improvements, the asset may then be considered to be a marital asset.
- While an inheritance received by one spouse may be considered separate property, those assets or monies must be maintained in separate accounts to remain separate. If such money is deposited into a shared account, it is assumed that one spouse has gifted half the value of the deposit to the other, therefore converting the asset to a marital asset.
- The same can be said for bank accounts or investments held by one spouse if they then put the other spouses name on the accounts. Once the other spouses name is added to the account, it is assumed the intention was to gift the spouse half the value of the account, making the account marital property.
For every asset that could be considered separate property, there are many ways that those assets can purposefully or inadvertently converted to marital property. As we mentioned, quite often we find that people who are unaware of the laws and precedents, are behaving in a way that personal and separate property can be mistaken or even ruled by a judge to be a marital asset. If you are just starting out in a new relationship, your best bet is to talk to a family law attorney who has experience with separate property and understands the nuances of equitable distribution. Planning ahead and utilizing devices such as pre-nuptial agreements can alleviate some of concern and lay out what is separate or marital property in a very detailed way. If you are going through a divorce and was unaware of the rules involved in separate or marital assets, you should consult with an experienced family law attorney to discuss your options and what assets may still be able to be protected. Anthony LoPresti has over 30 years of family law experience and is well versed in the laws regarding equitable distribution and the conditions in which separate property may be considered to be a martial asset. Call our office for a free consultation.