Defining Separate vs. Marital Property in Equitable Distribution

Equitable distribution is the legal framework used to divide property during a divorce in New York. Only property that is deemed marital in nature is subject to division. Generally, marital property includes assets and debts acquired by either spouse or both during the marriage. Separate property consists of assets acquired before the marriage or after the spouses cease to live together. Gifts and inheritances are also considered separate.

However, property that starts out as separate can become marital property depending on how it is treated during the marriage. In a contested property division case, the spouse claiming an asset is separate must trace its origins and show that the other spouse did not acquire an interest in it. There are two basic ways that separate property can become marital: commingling and transmutation.

Commingling means mixing separate assets with marital ones. For example, one spouse inherits a sum of money and deposits it into an account jointly held with the other spouse. The act of depositing is not in itself commingling, but if the account is used coequally for the spouses’ mutual benefit over time, the funds may lose their separate identity. The same may be true for money placed in a jointly owned investment account or otherwise placed under the other spouse’s control.

Transmutation means changing of ownership of property by formal transfer or by actions of the parties. For example, one spouse owns a house or other real property before marriage. At some point after the marriage, the mortgage on the property is refinanced and the other spouse becomes a cosigner on the loan. That spouse contributes to paying the principal and interest. The value of those payments can be considered marital property, as can the appreciation on the home after the transaction date. Or, if the non-owner spouse contributes cash or credit to a major improvement of the home, the contribution and the appreciated value after improvement can be deemed marital property.

Property can also be changed from separate to marital by being sold and the sale proceeds being used to purchase property jointly with the other spouse. If the spouses take ownership of the new property as tenants by the entirety, the law presumes that they each have full rights to it.

The best way to avoid confusion and ambiguity over what is separate or marital property is to enter into a prenuptial or postnuptial agreement. This is essentially a contract that defines the spouses’ respective rights in property regardless of when it was acquired. Such agreements are generally used to protect either spouse’s heirlooms or family homes from being split in a divorce. An experienced New York family lawyer can assist in drafting a prenup or postnup that carefully delineates each spouse’s rights.

The Law Offices of Randy S. Margulis serves clients in divorce and family law matters throughout the greater metropolitan Buffalo, New York area. Contact us online or call 716-886-9600 to schedule a free initial consultation.