Separate vs. Marital Property: Understanding the division of assets in your divorce

Getting a divorce means learning a whole new vocabulary of legal and financial terms. Therefore, having a team of experts to talk you through new concepts and what to consider as you make important decisions is essential to surviving the divorce process. In this post, we share our expertise around how to determine whether your property is separate or marital and what that means or your division of assets. Please note that this article details general expertise and please consult your attorney and team of professionals for specific guidance.

What is considered Marital Property?

Just as it sounds, marital property is shared property in the marriage. Examples of marital property include property acquired after the parties are married, which is technically from date of marriage to date of filing for divorce however, the laws do vary by state and in some cases by specific situations. Marital property also includes property appreciation, which happens if the property was acquired before the marriage by one spouse but has gained value during the marriage. That appreciation is considered a marital asset. On the other side, debt accrued together is also marital debt.

Sometimes questions arise with clients about how property is titled or who’s name is on accounts. It is important to note that it does not matter whose name is on the titles of cars, homes, rental properties, or other assets. If they were acquired while the parties were married, they are shared assets regardless of these legalities. The same goes for money in separate bank accounts, which is marital property if that money was accumulated during the marriage. In fact, all income earned by either spouse during the course of the marriage is considered a marital asset from a fundamental perspective.

Gifts given from one spouse to the other during the marriage are typically marital property, although some exceptions apply and it’s always a good idea to seek legal advice from a state-specific specialist. Lastly, sometimes property exceptions are outlined in a prenup or postnup, which should also be reviewed by an attorney during your divorce.

What is considered Separate Property?

On the other hand, separate property is any property acquired separately before the marriage or any property or assets acquired after separation (even before the divorce is finalized). Exceptions to this, some of which are uncommon, include:

  • Any gifts given by a third party to one spouse 
  • Inheritances acquired by either spouse at any time
  • Money from a personal injury lawsuit paid specifically to one party for pain and suffering

It’s important to note that all separate items must remain the party’s separate name in order to remain separate property. If these assets are co-mingled into joint title or joint accounts, they can become marital property.

How is property divided?

Generally, all marital property, assets, and debts are divided between the parties in a divorce. A division of property does not necessarily mean an exact physical division, but the overall value of all assets will be divided equally. For instance, if one party would like to retain all rental properties, the other party may receive more retirement funds. Separate property is not subject to division in this process.

When you divide property, overall percentages are close to equal (50/50) in the end.  If the division is not exactly equal the parties can either agree to the difference or can determine an ‘offset’ transaction in which one party will pay the other spouse a specific amount in order to make it as equal as possible. This is where negotiation strategy from your attorney and short- and long-term planning come into play with a financial advisor. Keep in mind that the overall percentage of assets can be drastically skewed if taxes are not taken into consideration, sometimes by up to 40% or more. A Certified Divorce Financial Analyst can help you perform analysis on this as most family law attorneys do not provide this service.

Each divorce is different and parties have unique wants and needs based on their goals and vision of the future. Some things may be more emotionally or psychologically important to one part or better align to future goals and plans. For example, you can’t physically split a house, but one party can receive the house in the divorce and the other can receive the cash from refinancing the home, or another asset to offset the difference. One party may value the home more for the kids while the other may want to retire earlier. In this case, one spouse could also buy the other out. 

As another example, If maintenance is involved, parties can opt for a lump sum payout instead of monthly payments that would alter a 50/50 division. Equity in the home, or other assets, can be provided to the individual receiving maintenance in lieu of monthly payments. There must be sufficient assets available for this to be an option. This might be important to one party if cash is needed for a home down payment or vehicle purchase.

When you officially transfer a property from a marital asset to one party in the divorce, the spouse not awarded the property must consent and relinquish all rights, title, and interest in the property by deed or other written agreement. This usually happens post-divorce with written stipulations of a specific deadline.

At A.M. Financial, we help you understand different options for splitting marital property and what those options mean for your financial outlook now and in the future. We can provide the analysis you need to make decisions, and discuss how your needs and values align accordingly. Contact us for a free consultation and learn more about how we can support your divorce today.