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Preserving Separate Property Between Separation and Trial Dates
(provided by David Melton & Associates)
Why is it important?
The time period between the filing for divorce and the permanent orders hearing is often six months to several years. If a party to a divorce has a material amount of separate property at the date the divorce is filed, it is especially important to preserve this separate property until the permanent orders hearing. Separate property belonging to a spouse will be set aside by the court for that spouse. Marital property will be divided "equitably" by the court.
If separate property is inadvertently depleted or transformed into marital property during this period, the party owning the separate property will be adversely affected. For example, if $300,000 in separate property is used to pay marital expenses during this period, instead of using $300,000 of available marital property, a 50-50 split of marital property would yield a $150,000 property settlement for each spouse. If the $300,000 in available marital property had been used to pay the marital expenses, there would be no marital property left to split and $300,000 of separate property would be awarded to the spouse owning the separate property.
How is separate property depleted?
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By using separate property to pay for marital living expenses
By commingling separate property with marital property
By transmuting separate property to marital property
By inadvertently using separate property from a commingled asset before the separate property component is identified through an asset tracing
Yes. There are several techniques to avoid the depletion of separate property during this period.
One involves the freezing of any asset account that may contain separate property until an asset tracing accounting of the account has been completed.
New checking accounts can be opened at the date of separation with only marital type property deposited and marital type expenses being paid out of the account.
Marital living expenses can be paid from a line on credit taken out after the date of separation.
Brokerage type accounts can be closely monitored to avoid any securities transactions that would deplete separate property. Closing out short sales in securities can frequently cause the unwanted depletion of separate property.
Planning is necessary
I have found that clients that do not properly plan to preserve separate property at the initial filing for divorce are frequently shocked when they learn that a material amount of separate property has been depleted in a relatively short period of time. They are also often extremely unhappy with their attorneys and accounting experts for not properly advising them at the outset. Therefore, whenever separate property is an issue, attorneys and accounting experts need to properly advise their clients on how to preserve separate property at the outset of a divorce action.
Information Provided By:
David Melton & Associates located at
http://www.assettracing.com
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