When a divorcing couple cannot agree on a fair division of their marital property, the property is distributed by the courts. Marital property is any property acquired by either party during the marriage, except property given by gift or acquired by one of the parties through an inheritance. Gifts from one spouse to another are marital. If your parents or a friend give you a gift, it is not marital property. But if the gift is given to you and your spouse, it is marital property. Sometimes it is difficult to determine whether a gift was given to the couple or to just one of the spouses. The beneficiary of an inheritance is more easily identified, since the will or automatic intestate succession clearly identifies the beneficiary.
The increase in value of nonmarital property is considered to be marital property and is subject to the court’s distribution powers. If a wife owns a savings account before marriage and interest earnings swell the account’s value, the increased value of the account is marital property. If a husband owns a home before marriage and market changes increase the value of the property, the increased value of the home is marital property.
The title to property does not necessarily control the court’s decision. If a couple buys several cars during marriage and title to the cars is taken in the wife’s name, the cars are nevertheless marital property because they were acquired during marriage. However, if a wife uses a premarital savings account to buy a car titled in her name only, the car is not marital property. The distinction is that where premarital assets are carefully maintained separate from marital property, they will retain their character as nonmarital property if a new asset is later acquired in exchange for the nonmarital property.
Sometimes when a couple marries after each having acquired significant property of his and her own, they later convey the property into joint names. It is common for a couple to renovate a home that was owned before marriage by one of the parties. Often, a couple will refinance the home, taking out a mortgage in their joint names to maximize their borrowing power. In the course of the refinancing process, title to the home usually passes into joint names through the issuance of a new deed. The courts presume this sort of transfer to be a “gift to the marriage.” Thus, the home becomes marital property. Likewise, if one spouse inherits money or property and puts it in joint names, the courts will presume that a gift to the marriage was intended. This presumption of a gift can be overcome by clear evidence that no joint ownership was actually intended.
If you own premarital property or receive an inheritance during your marriage, it is wise to carefully plan your handling of that property. If you intend to keep your premarital bank accounts separate, you should not deposit money earned during your marriage into those accounts. Instead, you should keep those accounts separate from any marital money. Because the increase in value of those accounts is marital property, it is wise to keep copies of account statements and to maintain some record of the withdrawal of interest or principal from those accounts.
If you intend to retain sole ownership and control of an inheritance, it should be held in a bank or investment account in your name only. If you intend that property you purchase using money from your inheritance account will remain nonmarital property, you should title the purchased property in your name, keep some record or notation of the purchase details, and discuss with your spouse your intentions with regard to any nontitled property you purchase.
A couple is free to enter into an agreement before or during marriage that defines and identifies the marital property. A couple that makes such an agreement is not bound by the legal definitions of marital and nonmarital property. Instead, the couple can come up with their own set of rules for the distribution of property. For a couple considering a written agreement, it is best to resolve these issues before marriage through a prenuptial agreement.