Generally, assets acquired before a couple’s wedding date are considered separate property and not subject to division in divorce. Gifts or inheritances explicitly given to one spouse during the marriage are also that party’s separate property. However, separate property can become marital property in divorce if such assets do not remain solely titled in the owner-spouse’s name, are commingled with the other spouse’s funds, are used by the married couple or paid from marital assets or expenses.
One situation where this problem can arise is when one spouse owned the couple’s home before marriage, or he or she used money earned before the marriage or received as a gift, trust fund or inheritance to buy the home during the marriage. As a general rule, the home will be considered marital property subject to division in divorce with a separate property credit to the funding spouse, even though the funding spouse solely paid for the house. This result can be avoided, provided however, that the funding spouse takes specific steps to shield the marital home from becoming marital property.
Once a couple is living in the home together as a legally married couple, it is virtually impossible to maintain the house as separate property. This results from the presumed efforts of both parties who will be deemed contributing to its upkeep whether financially or through sweat equity. As a result, if the parties divorce, the court will generally award the non-owner spouse a 50% share in the appreciation of the home from the day the spouse moved into the home as a married couple to the filing of the divorce action.
Trusts Can Shield Your Assets
The best way to ensure that a home continues to be considered separate property is for the funding spouse to set up a trust (or use an existing trust) and have the trust purchase the house. In this way, the home is not owned by either spouse. Thus, it never becomes marital property. However, for this to work, the home must remain in the trust and no marital funds should be used to make mortgage payments or capital improvements. If the spouse with the trust uses trust money to pay the mortgage or capital improvements, there must also be clear documentation on hand tracing those contributions from the trust.
It is generally permissible for the couple to pay utilities and property taxes out of marital funds without turning the home into marital property.
If you are getting married and looking to protect your separate assets or you are considering divorce, please contact us to learn how we can help you obtain the best results in your matter.