Q: What is separate property?
April 10th, 2018
A: The concept of separate property is often an issue in divorce cases, whether the parties have been married for a brief time or for many years. As a general rule, everything that is acquired during a marriage is marital property, subject to equitable division. “Equitable" does not necessarily mean equal, but equal division is in most cases the starting point. Where a party acquires property prior to the marriage, in many cases it will be deemed separate property, not subject to equitable division. A common example of this is when one party owns a piece of real estate prior to the marriage. If that real estate is kept in the original owner‘s name and not placed in the name of the spouse, it can retain its separateness and in many cases can be kept out of the property settlement equation.
Another example of separate property is a retirement account that is accumulated prior to the marriage. If such an account is kept in the name of the spouse who accumulated it and not commingled with marital finances, the court may find that such an account is separate property and award it solely to the party who brought it into the marriage.
There are many exceptions to the concept of separate property. Michigan has a statute which provides that, where the non-owning spouse has contributed to the acquisition, maintenance, or improvement of the asset, that spouse may be entitled to an equitable share of the property notwithstanding its original origin as separate property. Even when a property is deemed separate, sometimes the court can invade the separate property of one spouse if the marital property is not sufficient to provide for the suitable maintenance of the other marriage partner. The inquiry can be somewhat complex. In many long-term marriages, it is difficult to find a paper trail to substantiate separate property claims. Where that is the case, the courts will often defer to the fallback provision that everything in the marital estate is subject to equitable division.
Inheritances are generally considered separate property even if they are received during the marriage. However, if money or other assets received as an inheritance is commingled with marital assets, even inherited assets can lose their separate character and be deemed marital property subject to equitable division. A perfect example of this is when an individual receives a sum of money as an inheritance and uses it to pay off the mortgage on the marital home. This commingling of assets makes it difficult for a court to sort through separate property, and under this scenario, many judges will take the fallback provision that even the inherited assets are subject to equitable division.
I have seen cases where a spouse brings a clearly separate asset into a marriage and, simply through the passage of time combined with the cost of owning the asset, a judge finds that the asset has lost its separate character. A perfect example of this is the classic car that is inherited from one‘s parents and brought into the marriage. While that 1977 Thunderbird the husband brought into the marriage in 1985 may not have cost him anything, the cost of insuring, repairing, maintaining, storing, and otherwise pampering the vehicle may outweigh the cost of acquiring the car in the first place. If the wife has an aggressive attorney, she can show the court a simple accounting which will make it clear that marital earnings allowed it to be maintained and enjoyed for 30 years. In such a case, the asset may be subject to equitable division.
Another asset that is commonly the subject of a separate versus marital property debates is the family cottage. Family vacation properties are often passed down through the generations. When this is done, in most cases the cottage is deemed separate property of the spouse who receives it as a gift or inheritance from his or her parents or grandparents. However, it is also common for families to invest much of their life‘s savings in renovating and enlarging vacation homes.When this is the case, it is common for such a property to lose its separate character.
One may then ask, if an asset loses its character as separate property, does that mean it will be divided exactly 50-50? When answering this question, the courts will look at the term equitable, which, again, does not necessarily mean equal. For example, if Mr. Jones has $100,000 in his 401(k) when he marries Mrs. Jones, And he continues to work for the employer for 10 more years, and at the time of the divorce, the account contains $200,000, there should be a twofold inquiry. First, the court would look at the value of the account when Mr. Jones brought it to the marriage. We would then look at not only how much, but by what mechanism, the account appreciated in value. If the gains were solely attributed to the market, it is likely the court would deem the asset the separate property of Mr. Jones. However, if one or both of the parties continued to actively contribute to the account, it might lose its separate character. Once that happens, the court would need to determine what is equitable under all the circumstances in dividing that account. It would certainly be equitable, all other things being equal, for the court to slant the division somewhat in favor of Mr. Jones, even if the asset were deemed marital, in light of his premarital holdings.
Separate property vs. marital property is one of those debates that has no clear answers under the law in Michigan. The courts must decide each situation on a case-by-case basis. If you brought assets into your marriage, do not assume that they are marital property. However, look carefully at the history of the asset throughout the marriage and explore this issue carefully with your attorney.
For more information about property division, click here.
For more information about division of real estate, click here.
For more information about division of personal property, click here.