How Does Separate Property Become Marital Property?
- How Does Separate Property Become Marital Property?
- What Is Marital Property and What Is Separate Property?
- The Presumption of Marital Property
- Why Property Classification Matters
- Real Estate: Separate or Marital Property?
- How About Other Assets, Accounts, and Debt?
- Myers Law Firm Will Help You Figure Out Marital Property Versus Separate Property in a Divorce
How Does Separate Property Become Marital Property?
During a divorce or separation, emotions run high. Even an amicable split is stressful and difficult. And one of the biggest headaches in these kinds of circumstances can be caused by the division of assets, especially when it seems particularly unfair to one side.
Understanding what separate property is, and how one spouse’s separate property can become marital property, will help prepare you for the legal process of property division.
North Carolina is not a “community property” state. Instead, our state follows the “equitable distribution” method of dividing property when spouses are separating. This means that property is divided fairly in the eyes of the court, and that does not necessarily mean each side receives an equal share of the property. “Equitable” does not have to mean “equal.”
If you want to protect your separate property during a divorce, an experienced family lawyer like Myers Law Firm can guide you through the process and help you find the documentation to prove that your assets should not be included in the division of marital property.
What Is Marital Property and What Is Separate Property?
In the event of a divorce, there are different classifications for property and assets. These classifications determine whether the property goes to one spouse, or whether each spouse has a claim to the value of the property.
Marital property is anything that was acquired from the date of marriage to the date of separation, with exceptions for separate property like gifts and inheritances clearly belonging to one spouse.
Marital property typically includes any wages, assets like houses or cars, real estate, investment accounts, retirements accounts, bank accounts, and debts. Even if an account only has one spouse’s name on it, it is still marital property if it was acquired during the marriage.
Separate property includes property that was acquired before marriage, or any property acquired during the marriage that was a gift or inheritance for one spouse.
There is a third classification in North Carolina, which is called divisible property. This is property that was acquired before the date of separation, but was received after separation, or marital property for which the value has changed since separation.
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The Presumption of Marital Property
One very important factor in all of this is the “presumption” that applies to the definitions of marital versus separate property.
Under North Carolina law, all property that was owned by either spouse on the date of separation is presumed to be marital property. What this means is that the spouse who is claiming that a certain piece of property is separate property must present sufficient evidence to overcome the presumption and prove that the property qualifies under the definition of separate property. If sufficient evidence is presented, then the property should be declared to be separate property.
Why Property Classification Matters
The classification of property is incredibly important because a judge can decide how marital property gets divided up between the spouses. Separate property only belongs to one spouse, and therefore cannot be awarded to the other spouse. However, separate property can become marital property in certain scenarios.
When separate property gets mixed with marital property, these “comingled” assets can become marital property or be considered “mixed” property that is partly separate and partly marital.
Real Estate: Separate or Marital Property?
One of the most complicated comingling of assets is the marital house. If one spouse owned the house before marriage, it is a separate asset. However, if the other spouse moves in, what happens then?
If the other spouse is added to the deed, then North Carolina law says that the house becomes marital property. This is usually pretty straightforward.
If the value of a house that is separate property goes up due to the real estate market only, for example, that appreciation is considered separate property.
However, if money that is earned during the marriage is used for upkeep, the mortgage, or renovations, the non-owner spouse will gain a marital interest in the property. In some cases, they only have a claim to the appreciation in value, such as if they contributed to renovations that made the house more valuable. This calculation can be very contentious and requires good recordkeeping.
How About Other Assets, Accounts, and Debt?
While real estate and houses are major considerations in property division, there are a variety of other ones as well. Various accounts, investments, and even debt are all reviewed in cases of legal separation and divorce:
Appreciating Assets (Investments)
Separate property assets that appreciate passively, like investment accounts, real estate, and collectibles, remain as separate property. However, if someone were to use marital assets to fund an investment account, that action can then turn the asset into mixed separate and marital property.
Similarly, if a retirement account acquired before marriage continues to receive contributions after the date of marriage, this converts the account into mixed separate and marital property. With extremely good recordkeeping or forensic accounting, it may be possible to determine which portion of the account is separate property and which portion is marital property, but this can be very difficult and time-consuming.
For depreciating assets like automobiles, boats, RVs, furniture, etc., the same rules apply. If they were acquired before marriage, or after marriage with separate funds, they are separate assets. If they were acquired after marriage using marital funds, they are marital property that will be divided between the spouses. The fair market value of the assets plays a part in the equitable distribution of such property.
As an example, if a boat is acquired during marriage but paid for with money that is separate property, then the boat is also separate property. However, if the other spouse makes any contribution to payments or upkeep, it could change the classification to mixed property.
Debt can be very contentious to settle. Debt acquired before marriage is separate property. As a general rule, if the debt was taken on during the marriage and was for the benefit of the marriage, both spouses are typically responsible for the debt.
Student loan debt taken on during the marriage can sometimes be treated as separate debt, but if the other spouse benefitted from the education, or if the loan money was used to benefit the marriage (such as payment for groceries or rent), then the debt is marital property.
Unfortunately, if your spouse had hidden credit cards from you during your marriage, you may need to prove that you did not benefit from the things your spouse purchased in order to treat that debt as separate property.
Bank accounts that start out as separate property must be treated carefully so as not to become marital property. If you deposit marital property into a bank account, such as a paycheck, that can count as comingling assets. If you use money from a separate bank account to make payments on a marital loan or mortgage, that is considered a gift to the marriage.
When you have a joint bank account, there is typically less question as to whether it is considered marital property or not. In this instance, the joint account belongs collectively to the married couple and falls in the category of marital property.
Gifts and Inheritance
Gifts and inheritance bequeathed to a single spouse, whether before or during the marriage, are typically treated as separate property. If the other spouse contributes towards the asset and increases its value, it can become mixed separate and marital property.
Myers Law Firm Will Help You Figure Out Marital Property Versus Separate Property in a Divorce
If you believe you have separate property during the dissolution of your marriage, it can be challenging to find the documentation necessary to prove your sole ownership. The help of a divorce attorney like Myers Law Firm can be invaluable. We can assist you in understanding your rights and options during stressful circumstances like this.
Schedule your consultation with Myers Law Firm by calling 1-888-376-ATTY (2889) or using our online contact form. Our knowledge of the local court system in Charlotte and Mecklenburg County will help us answer your questions about how your property may be classified during your divorce.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.