Divorce: Separate vs Marital Property
This was originally posted to CarinMaxey.com
Splitting up assets can be a messy task for a family going through a divorce. There are the bigger assets such as the house and the cars, but often people don’t think about the other items that need to be split fairly between the two people. Deciding who gets what can be a challenge, even with the most flexible of divorcees. Contentious divorces can be even more difficult.
When deciding how to divide these assets, their current dollar value shouldn’t be the only thing taken into consideration. Any taxes, its liquidity, and the cost basis should all be noted when deciding who gets what asset. This will aid in both long-term and short-term financial security for both parties. However, it’s also important to note the differences between marital property and separate property.
Depending on which state you live in, the definitions of these two properties can differ. In my experience, separate property, includes the property that was owned by each before the marriage, any inheritance that was received by one individual, a gift to one individual by a third party, and any payment awarded for personal injury. Commingling these separate properties with marital properties can render the status of “separate” void. Classic examples of this are adding your spouse as a co-owner on the deed to the beach house or depositing your inheritance money to your joint bank account.
What I’ve found is that most people don’t understand that property acquired during the marriage is typically considered marital property, regardless of how it is titled. Again, this can vary by state. However, most people don’t realize how much they’re entitled to during a divorce. Marital property doesn’t just come down to the house, the cars, and the other tangible items acquired during the marriage. It also includes incomes, retirement plans (401Ks, IRAs, pension plans, etc.), stocks, insurances, annuities, bank accounts (checking, savings, CDs, etc.), professional practices, and tax refunds.
If a separate property gains value during the time of marriage, that increase could be considered marital property. This can be differentiated into two categories: active and passive appreciation, once again, all depending on which state you reside in. Active appreciation is when you and your spouse work together to increase the value of the property. If an outside force, such as inflation, increases the value o