Dual Classification and All Property Methods
In general, equitable division states classify property in one of two ways: all property, used in 14 states and also called Kitchen Sink method, or dual classification, used in 29 states to define separate and marital property. In these states, the parties must determine when an asset was acquired to determine if it was acquired during the marriage and therefore subject to distribution in a divorce. Generally, separate property in these jurisdictions is immune from distribution. By comparison, the so-called Kitchen Sink states -- Connecticut, Indiana, Iowa, Kansas, Massachusetts, Michigan, Montana, New Hampshire, North and South Dakota, Oregon, Vermont, Washington and Wyoming -- include separate property in the marital estate subject to distribution. Eight other states -- Alabama, Alaska, Arkansas, Hawaii, Iowa, Minnesota, Ohio and Wisconsin -- do so if there is a situation of need by the nontitled spouse.
Dual classification states are all the jurisdictions that are not Kitchen Sink States.
Sometimes called immune property, assets that are not subject to distribution in a divorce settlement are said to be separate property.
Separate property is owned by one spouse prior to marriage and not part of the marital estate and, in most states, not up for distribution upon divorce. In general, separate property includes a gift to one spouse or a bequest to one party, or in dual classification states, assets acquired before the marriage.
Neither dual classification nor all property definitions are as simple as they sound. For example, if Ginny received 100 shares of XYZ Company as a gift before she married John, a portion of the passive appreciation of that stock may be subject to distribution even though the gift itself is her separate property.
In addition, the commingling of assets at times makes the circumstances of acquisition difficult to determine. Moreover, a situation of need gives the courts judicial discretion in making a fair and reasonable distribution of property.
Prenuptial agreements also establish separate property.
Problems sometimes happen because during the happier times of a marriage the terms and conditions under which a gift to one person is made may be misconstrued as a gift to a couple. This can easily happen when a couple get financial help from one or the other spouse's parents in buying the marital home.
In Kitchen Sink States jurisdictions, gifts between spouses and inheritances can become very much of an issue. A married couple often merges finances. Even if each spouse keeps a separate bank account, he or she may not realize that in some jurisdictions the money may be considered to be a marital asset and subject to distribution in a divorce. When separating or divorcing, the accrual value of assets, such as bank accounts or real estate, carries significant weight in determining a fair and equitable property distribution award.
Increasingly, courts classify the appreciation of a separate property business as marital when the owner "engaged in active efforts - even to a small degree." Spouses who have a separate property business cannot argue that the appreciation of that business is passive, and hence separate, even when they are not involved in the day-to-day operations of the business.
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COMMUNITY PROPERTY VERSUS EQUITABLE DISTRIBUTION -- There are two basic ways to handle divorce property division: Community Property: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and Puerto Rico are community property states. This means that all marital property is typically defined as community property or separate property. When divorcing, community property is typically divided evenly, and each spouse keeps his or her separate property. Equitable Distribution: All other states follow equitable distribution. This means that a judge decides what is equitable, or fair, rather than simply splitting the property in two. In practice, this may mean that two-thirds of the property goes to the higher earning spouse, with the other spouse getting one-third.
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