At some point, divorcing spouses will need to divide their property between them. Parties may be able to come to an agreement as to what constitutes an “equitable distribution” of property through a kitchen table discussion, attorney facilitated settlement or mediation, or they may require the court’s assistance. When a court is involved, it must first classify the couple’s property as separate, marital or hybrid. This distinction is important as only marital property and the martial portion of hybrid property is subject to equitable distribution.
Separate property is typically any property acquired before the marriage or after the date of separation, inherited property or property gifted from someone other than the other spouse, property acquired during the marriage using funds derived from separate property, income received from separate property and capital gains on separate property. Property purchased with marital funds after the date of separation is considered marital. Accordingly, a spouse who buys a house or opens a bank account using marital funds after the date of separation should expect that house or bank account to be classified as marital property.
Property purchased during the marriage using separate funds is separate property only if it is not intended as a gift and is not commingled with marital property. Separate property that has been commingled with marital property will be subject to a tracing exercise to determine what portion of the commingled property remains separate. Tracing is not an exact science and courts may be unable to determine the precise portion of the commingled asset that is separate.
Income received from separate property due to the personal efforts of the other spouse may be classified as marital. For example, if one spouse personally handles the investments of the other spouse’s separate property and that property grows in value, the investing spouse may claim a portion of the increase in value as marital property.
Once property is categorized as martial and a valuation is placed on the property, the court analyzes several factors to determine how the property should be equitably divided including the monetary and nonmonetary contributions of each party to the well-being of the family and to the acquisition, care and maintenance of the marital property, the duration of the marriage, the ages and physical and mental condition of the parties, the circumstances that contributed to the dissolution of the marriage, the circumstances surrounding the acquisition of the martial property, the debts and liabilities of the parties, the tax consequences to each party, and the use of marital property for a separate purpose or the dissipation of such funds.