Each state decides how spousal property is divided when a marriage ends. Where equitable distribution rules apply, as they do in New Jersey, spouses are supposed to receive fair but not necessarily equal shares of marital property. The spouses’ interpretations of the word “fair” during divorce cause many legal disputes.
All states categorize spousal assets and debt as separate or marital property. Separate property, belonging exclusively to one spouse, often has roots in the past. Either the property was acquired before marriage or it came through third-party gifts, inheritances or personal injury claims during marriage.
Divorce involves a division of marital property which, for the most part, is any property that hasn’t been labeled as separate by the courts or in earlier legal agreements by the spouses. Prenuptial and mid-marriage agreements allow couples to classify property according to their own desires. Disputed property rules default to state guidelines when couples don’t have these contracts.
Some spouses don’t realize that inheritances and gifts can lose their marital property exemption status. This depends upon how the asset is treated in the hands of its owner. A spouse who inherits a large sum of money doesn’t have to share the asset during divorce provided the funds are kept separate and apart from marital accounts and investments.
The process of mixing separate and marital property is called commingling. Examples would be using some or all of an inheritance to purchase a marital home or depositing a third-party gift of money into a jointly held bank account. Separate property belongs to one spouse unless it is married to a joint venture.
Some of the types of assets that spouses will need to determine ownership for include:
- Bank, investments, and retirement accounts
- Rental property
- Investment property
- International property
- Cash (i.e. tips or revenue from selling personal property)
- Deferred compensation
- Physical assets
- Artwork or art collections
- Oriental rugs
- Coin collections
- Summer home(s)
- Gifts from parents
- Small business income, inventory, and equipment
It is advisable to seek legal counseling in advance of any transaction involving separate property. Divorce attorneys also recommend keeping clear and complete records about gifts and inheritances. This way, if any dispute arises during divorce, there is proof of the property’s separate or marital status. If you believe you spouse is hiding assets, there are a number of different methods for uncovering hidden assets in a divorce.
Source: Forbes, “Divorcing Women: Here’s How to Protect Your Inheritances And Gifts,” Jeff Landers, accessed March. 27, 2015