Classification of Property Before Division
Key Points
  • Step one. Property must be classified as Marital or Separate. In most states only marital property is divided upon divorce. Parties can have differences about the value of assets, but the classification must come first.
  • Classification of property upon divorce becomes challenging when separate assets become "commingled" with marital assets or separate assets are used to purchase marital property, like a home.

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."

Useful Online Tools

Suggested Reading
The Property Division Handbook The Property Division Handbook
This book will explain in detail the property distribution aspect of divorce and separation. It will focus on the rights each spouse has under certain laws, situations, and circumstances, and how the division of the property will be decided by the court or through negotiation.

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DATE OF SEPARATION – Depending upon the laws of the state of residence, the Date of Separation – called the DOS – has a profound impact on the eventual division and distribution of property and debt, including credit, pension benefits, and other marital assets. As of the DOS, the separated spouses are now in limbo legally and financially and remain so until the actual Date of Divorce. A great deal of money may be at stake. For example, one spouse may share responsibility for any debts incurred by the other; the value of a retirement plan or other marital asset, such as residential property, may fluctuate, often by thousands of dollars.
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