Separate vs. Marital Property: How Do I Know What Is Mine to Keep?

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Education & Training with Real Estate Divorce Specialist Association

By Carol Ann Wilson, CFP, CFDP

In general, separate property, includes what a person brings into the marriage, inherits during the marriage, or receives as a gift during the marriage

Marital property is everything acquired during the marriage no matter whose name it's in. In some (but not all) states, marital property also includes the increase in value of separate property.

Patty and Dan are getting a divorce. When Beth got married, she had $12,000 in a savings account. During the marriage, her $12,000 earned $800 in interest and now the account is worth $12,800.

Her property is $12,000, because she kept it in her name only. In some states, the $800 in interest goes into the pot of marital assets to be divided because that is the increase in value of her separate property. If Patty had put her Dan's name on the account, she would have turned the entire account into a marital asset. She would have made a gift to the marriage.

Many times, people bring a house into the marriage, especially if it is a second marriage. Suppose that Patty had a house when she got married, which she kept in her name only. At that time, the house was worth $130,000 and had a mortgage on it of $100,000, so the equity was $30,000. Now Beth is getting divorced. Today the house is worth $180,000. The mortgage is down to about $80,000. Equity has increased to $100,000.

At Marriage

At Divorce

$130,000 Value

$180,000 Value

-100,000 Mortgage

-80,000 Mortgage

$ 30,000 Equity

$100,000 Equity

The increase in value is the increase in the equity, or $70,000.

But what if Patty put Dan's name on the deed to the house when they got married. As soon as she put Dan's name on the deed, she gave a gift to the marriage. This turned the house into a marital asset.

What about an inheritance? If Patty received $30,000 when her father died and she put it into an account with her name only on it, then at the divorce, it is her separate property except for the increase in value. It is the same with a gift. When she received the gift or inheritance, if she put it into a joint account, she turned that money into marital property.

Things get confusing when contributions are made to retirement plans because a retirement plan can only be in the employee's name. Patty puts $100 a month into a retirement account in her name only, and now it is worth $2,600. At her divorce, is this money separate or marital property? It is marital property because it is acquired during the marriage, no matter whose name it's in.

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