DIVISION OF PROPERTY
Determining Property Division in a Divorce
What is Considered Marital Property?
Marital property is typically divided between the parties in a divorce action. With few exceptions, marital property means those assets that were acquired during the marriage from the time of the wedding to the date a summons for divorce is filed with the county clerk.
Assets that are acquired prior to the marriage and after the filing of the summons, and by inheritance, gift from a third party, and for personal injuries, are the separate property of the recipient spouse. Separate property is never divided between the spouses, provided that the recipient spouse can prove the separate property origin of the asset, and also provided that the separate asset remains intact as recognizably separate (more on this below).
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Before marital property can be divided, it must be identified. One purpose of the Statement of Net Worth, the financial statement that all parties to a divorce action must prepare, is to set forth a full list of property that each of the spouses owns, or has some interest in. This list is used as a starting point to identify the assets that may be divided. However, the manner in which an asset is identified in the Statement of Net Worth is not conclusive. For example, a spouse may believe that an account he owned before the parties were married is his separate property. However, he would be correct only if the account has remained a passive investment without marital monies being deposited into during the marriage, and further provided there are statements available that show the account actually existed at the date of marriage. If there are no statements available from the date of marriage, the asset will be considered entirely marital.
Some marital assets are not easily divided and their value is not easily ascertained. Business interests and stock options are examples. When one of the spouses owns an interest in a business, an appraisal of the value of that interest is performed by a forensic accountant. That way, the other spouse can receive equitable distribution of the business-owning spouse’s interest in the business without forcing the business to be sold.
When marital property is divided, each spouse receives an equitable portion of the marital property belonging to the other spouse. This is generally done one of two ways— either the asset is physically divided, i.e., a withdrawal is made from an account and paid to the other spouse, or the value of the asset is offset against the value of another asset or assets that the other spouse will retain. Valuation is important for the second method, since the parties will want to be sure that what they are keeping is equal to the value of the thing or things they are waiving. Often, assets are divided both ways in any given case, depending on what works best for the parties.
What is Considered Separate Property?
Separate property is property (assets) that is not divided, and remains the sole property of the owner-spouse after marital assets are divided. There are five types of separate property:
(1) property owned prior to the marriage;
(2) property acquired by inheritance;
(3) property received by gift from a third party;
(4) property received as an award for personal injuries, and
(5) property acquired after the date of commencement of the divorce action or execution of a Separation Agreement.
As a practical matter, separate property does not exist unless it is proved by the owner-spouse. It is not enough to testify at trial how certain property was acquired. There must be documentary proof of the origin of the property from a separate property source to establish a separate property claim. Because the existence of separate property depends upon the ability to prove its existence with documents, there are many cases in which an asset that likely came from a separate property source is nonetheless deemed marital property and shared with the other spouse.
It is not uncommon for separate property claims to fail since there are many ways that an asset received from a separate property source can lose its separate identity during the marriage. The term “comingling” refers to a separate property asset, usually a bank account, becoming a marital asset because the separate asset has been infused with marital funds to the point that the original separate property asset can no longer be identified. For example, a checking account with $50,000 that existed on the date of marriage in the sole name of the one of the spouses could lose its separate property character over time if that spouse paid bills from the account and deposited his/her weekly paycheck into the account.
Separate property can also become marital property if the form of title is changed to joint ownership. Called transmutation, separate property is lost when the other spouse’s name is put on title. This happens when a house or other real property is conveyed from one spouse’s name into joint tenancy. In most cases, the value of the contribution can still be retained by the gifting spouse, provided that he/she proves the value of the house at the time of transfer.
There are many intricacies to separate property claims which an experienced divorce attorney can identify and advise you about. Whether you are claiming or defending a separate property claim, well-informed planning is essential.
How the Court Determines a Fair Division of Debt and Assets
In a New York State divorce action, marital property is equitably divided. The word “equitable” does not necessarily mean equal, but in most cases equitable distribution will be an even 50/50 split. Both assets and debts are divided in this way. The division is generally equal because the courts base the distribution on the contributions, both direct and indirect, of the parties. Even though one of the spouses may have made most of the money and accumulated most of the assets, the other spouse’s contributions as spouse, parent and homemaker are assumed to have an equal value.
There are exceptions to the general rule that assets and debts are divided equally, however. In cases where the parties have been married a short time and they have kept their accounts in separate names, or where there are no children and the parties have clearly made unequal contributions to the marriage, the distribution of assets can be unequal.
There is a further exception to the equal division rule that applies even in cases where the parties have been married a long time and their contributions to the marriage are presumed to be equal. In cases where one of the spouses owns an interest in a business, the non-owning spouse will generally receive less than half of the value of the business-owning spouse’s interest in the business. How much less than half depends on the extent of the non-owning spouse’s involvement in the business. If he/she was very involved and helped with the books, etc., the interest can be 40% or more. If the non-owning spouse had little to no direct involvement in the business, the interest is often 10-15%.