In every divorce case, the court is required to make a legally required ‘Equitable Distribution’ of all marital assets and marital debts. ‘Equitable Distribution’ means an equal division of the value of the net marital estate (assets minus debts) between the spouses. But first, the court is required to determine what assets and liabilities are ‘marital’ (i.e., a product of the marriage) and which are ‘non-marital’ (i.e., from outside the marriage). Non-marital assets and non-marital liabilities are deemed the separate property of the spouse who owned it (or owed it) prior to the marriage. These are returned to the spouse who brought them into the marriage. Finally, the court must value the marital assets and marital liabilities, and the total value is then divided between the spouses.
Examples of non-marital assets would include inheritances received before or during the marriage, or property owned by or gifts to one spouse made prior to the marriage. Examples of marital assets would include the house purchased during the marriage and retirement or investment accounts accumulated during the marriage. Examples of non-marital liabilities would include student debts incurred before the marriage and credit card debts created before a marriage.
In order to protect these non-marital assets during a marriage from Equitable Distribution, the owner-spouse needs to ensure that these assets are not co-mingled with marital assets. If they are co-mingled, these non-marital assets may be later deemed ‘marital’ and subject to Equitable Distribution.
What are some examples of co-mingling that should be avoided during the marriage to protect their status as the spouse’s separate property and not to be touched by the other spouse in the event of divorce? The easiest example is when one spouse places the other spouse’s name on the title to a pre-marital asset, like a bank account holding a pre-marital inheritance, or on the title to a piece of real estate owned by the spouse prior to the marriage. If this occurs anytime during the marriage whether brief or long-term, the pre-marital asset is now deemed ‘marital’ by the court and the protection accorded to the non-marital asset in a divorce vanishes.
What are the three ways a spouse can avoid co-mingling a separate, pre-marital asset? First, keep the pre-marital asset separate. Do not convey any interest in that asset to the other spouse. Second, maintain the pre-marital asset with funds from outside the marriage if at all possible. Do not use your marital paycheck to maintain it. Third, and best by far, is to have a prenuptial agreement that specifically excludes the pre-marital asset from the marital estate that will be created once the parties marry.