Classification of Property Before Division
The classification of assets is a preliminary to the division and distribution of property. In a divorce, everything a couple owns and owes is classified into one of two categories -- marital or separate property. In the so-called all property or Kitchen Sink States, both kinds of property are subject to distribution. In most states, however, only the marital property is divided.
Different jurisdictions have different shadings to define marital and separate property. Generally, marital property is everything a couple earned or acquired during the marriage. Generally, separate property is property that belongs only to one spouse, such as property owned before the marriage, gifts and inheritances, property acquired using separate assets.
The classification of assets, in turn, depends upon a date of separation. After the date of separation, on both sides of the balance sheet, what is his is his and what is hers is hers.
Needless to say, deciding what is marital property and what is separate property often becomes contentious. Much, if not even most, separate property becomes commingled to one degree or another during a marriage. Difficulties frequently arise when one party places his or her separate property in joint names, when a spouse commingles separate property in an account that contains marital property, or in the case of a business, when one spouse made active contributions to the growth of a business the other owned before the marriage. In general, however, when separate and marital funds are commingled, regardless of which came first, the resulting mixture is presumptively marital. The spouse who made the separate contributions can establish a claim to it by proving the nature and amount of the separate contribution.
States treat the appreciation of assets, separate and marital, in different ways. Some states make a distinction between active and passive increases in income from separate property and active and passive appreciation in the value of separate property.
After the assets are classified, they can be divided and distributed.
In general, in community property states, spouses own equally almost all the property the other one acquires during the marriage, regardless of who has title, and in these jurisdictions the terms marital property and community property are used interchangeably. This would include the income of a spouse. In general, in equitable distribution states, a person’s income is his or her own, and property in one name, even if both paid for it, is the property of that person.
The classification and division of property sound simple and easy. In practice it is not. In determining whether a spouse’s interest is marital property, a court must decide whether the interest meets the legal definition of property. Each state not only has a set of what are termed "factors" by which a judge determines a fair division of property but also by which he or she has "the freedom to consider anything that is relevant to [an individual] situation."
Resources & Tools
ASSETS AND LIABILITIES – A property settlement must deal with what a couple own and owe, both as individuals and as a couple.
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