What's the Difference Between Marital and Separate Property?
One of the thorniest parts of divorce is the process of dividing up your property. If you have researched Utah law on the subject, you will have read that the court is supposed to divide all marital property in an equitable manner. Sounds reasonable and straightforward—but what exactly does it mean, and what is the difference between marital and separate property?
There are two words that need to be unpacked in order to have a good understanding of Utah property division in divorce. The first is "equitable." Although it looks similar, "equitable" does not mean "equal"; it means "fair." Although in practice equitable division of property is usually pretty close to an equal split, it's important to remember that you don't have a right to a precisely 50-50 division. There might be circumstances that warrant giving one spouse slightly more of the property and the other slightly less.
The other term that merits close examination is "marital" property. It might at first appear to be a throwaway word, but it is very important. While marital property is to be divided in a divorce, not all property is marital property. Some property, such as inheritance, or a gift to one of the parties, is considered non-marital or separate property. Property that was owned by one party before the marriage is usually considered non-marital property, too. If that property appreciates in value during the marriage, under most circumstances, the appreciation is also considered separate property
In general, though, in the words of the Utah Supreme Court, marital property includes "all of the assets of every nature possessed by the parties, whenever obtained and from whatever source derived." That includes income from work during the marriage and real estate and other property purchased during the marriage.
Is That Property Marital or Non-Marital?
As you can imagine, quite a lot can hinge on the question of whether an asset is marital or non-marital (separate). And the answer is not as clear-cut as you might think. That's because property that once was clearly separate can become marital, through a process called commingling.
Let's imagine a fictional couple called Mike and Carol. During the marriage, Carol inherits $100,000 from her dear friend Alice. She places it in the joint bank account she shares with Mike. The next week, they put down a deposit on an architect-designed house in Salt Lake City and live there for ten years before they divorce. Carol claims that she should receive an extra $100,000 from the equity in the house because of the money she put into the joint bank account to help fund it.
Unfortunately for Carol, this argument probably will not fly with the judge in the divorce. When Carol chose to put the money into the joint bank account, it became commingled with marital funds. Then those funds were used to purchase a marital asset, the house. Most courts are not willing to try to trace an asset spent several years ago back to its source. The court will likely deem the house marital property, and refuse to give Carol an extra share.
The same outcome would likely result if Mike used the funds in his personal savings account that was opened in his own name, and funded before the marriage to buy the house and place it jointly in his name and Carol's.
Now, let's say that Carol had an investment account before marriage, and Mike bought a vacation cottage before marriage, both worth $200,000. Carol invested wisely, and without further investment or effort on her part, the account grew in value to $300,000 during the marriage. Carol used her free time to update Mike's cottage, repairing, gardening, and redecorating so that the little house increased in value to $300,000 because of her efforts. Then the couple decides to divorce.
Mike acknowledges that Carol's investment account is her separate property, but argues that the appreciation occurred during the marriage, and so should be marital property. Carol, for her part, argues that she is entitled to part of the appreciation of Mike's cottage.
Carol is in a stronger position. Mike in no way contributed to the appreciation of her separate asset, but she was actively involved in the appreciation of his. A judge is more likely to consider the appreciation of the value of the cottage marital property that is subject to division in the divorce (but not the cottage itself).
How to Protect Your Separate Property
The best time to protect your separate property is at the start of your marriage, or before. A prenuptial agreement can detail what property you each possess and your intentions as to how the appreciation of that property will be treated. A prenuptial agreement can also, of course, set forth your intentions as to how any marital property will be divided. As long as such an agreement isn't grossly unfair, and both of you willingly enter into it with full information, a court will honor it. Prenuptial agreements are increasingly common, especially in second marriages and divorces involving complex assets.
Even without a prenuptial agreement, there are ways to protect your separate property. If you have a separate bank account or investment account before marriage, keep it in your sole name and don't take funds out of it for marital purposes, like to buy a house or car. (And remember: you can't take marital assets, like a paycheck you earned during the marriage, and convert them into separate assets by depositing them in your separate bank account).
If you owned real estate before marriage, keep it in your sole name, especially if it is paid off. If you sell it, deposit the funds into an account in your sole name and do not commingle those with marital funds. It is imperative that a judge be able to easily trace the funds in the account directly back to your separate asset. If the property is not paid off, but you have some equity in the property, ask your spouse to sign an agreement regarding the treatment of the equity as your separate property—and then keep it separate.
If you have questions about marital and separate property in Utah, and would like to speak with an experienced Utah family law attorney, or are interested in a prenuptial or post-nuptial agreement, we invite you to contact our law office.