Separating “marital assets” into “separate assets” can be like trying to undo chocolate milk. Pour chocolate syrup into milk to get chocolate milk; that’s easy. But afterward, try to separate them back to syrup and milk? Good luck.
The happy couple should never, ever change the names on assets (investments, real estate, etc.) naively, casually, or offhandedly. Thoughtfully, yes; deliberately, yes. But casually, no.
Here’s the deal. Sometimes marriages go sour. When that happens, the law knows there’s (a) separate property and (b) marital property. (Obviously, we’re not talking about Wii consoles and Bundt pans.)
The difference: separate property stays with its owner. Separate property can be controlled when a marriage ends at death. Separate property can stay separate in a divorce.
But marital property is treated differently. It gets divided up “equitably.” This means someone decides the who-gets-what percentage each owner gets. In an unhappy marriage, it can take a judge and jury to decide. Same for the dissolution of other relationships.
So the first threshold: is the disputed property separate or marital? If the latter, how is it to be divided up fairly, including whatever growth is in the assets, improvements, etc. etc. etc.
It’s not an easy question to answer. Consider a seemingly-harmless home ownership (and this is a real case). Husband owned the house. Got married. Wife moved in. Five years later, the husband signed a deed making him and his wife “tenants in common” but with a “right of survivorship.” (That combination is a little bizarre, but it’s basically ok.)
A few years later, the marriage soured. And the house, which had been the husband’s separate property despite their both living there, became marital property by his signing that deed.
It gets worse. What’s “separate vs. marital” is not always that clear-cut. How about the husband and wife who met on a dating website, and got married. They did a nice pre-marriage job dividing up who would keep what. And each had a house which they were going to keep, even though they would live together in his.
The marriage ended after 19 months.
The wife then claimed that the husband’s house should be treated as marital property, and not as his separate property, as previously agreed upon.
Why? After moving in, she had spent over $15,000 fixing up his house. She used her own money to make payments on the husband’s mortgage. At one point, he deeded the house into her name and then they undid that, when he heard that doing so wouldn’t help him protect the house from his creditors.
Long story short: the trial court and the Supreme Court both held that the house stayed his separate property, and was not marital property.
If you’re looking for consistency in deciding between marital property and separate property, it’s a case-by-case issue. So we recommend: confront the issue. Discuss the issue. Get legal counsel.
Especially if there are children from an earlier marriage. What a parent owns and which should go to his/her children after remarriage and subsequent death could easily become marital property . . . gutting what the children will get.
Choices? If you get an inheritance, keep it separate. That hurts nothing. If you die, your Will can deal with it. If you’re incapacitated, your financial power of attorney can preserve it.
If you’re getting married, think through – and get advice on — what things should be titled in whose name. You can light a unity candle. You can plant a unity tree. But don’t heave your combined assets into a financial unity dumpster without getting counsel on the consequences.
You can even consider a hybrid: a limited liability company. In a particular structure, it enables you to keep things combined for some purposes, and separate for others.
But that’s topic for a different day. Go get some chocolate milk.