Protecting Your Separate Property in Marriage & Divorce
When a client is thinking about a divorce, one question that frequently arises is whether or not she or he is entitled to part of the spouse’s separate property. While the question may seem simple, the answer is not. Whether or not pre-marital property is protected depends on how the property was held and treated through the course of the marriage, and many times, that is simply not clear-cut.
In this article experienced Oakland County divorce attorney Starla Zehr offers 6 things a spouse can do to protect their private “separate” property during the marriage – to ensure your pre-marital property remains your separate property, and is not subject to division with your spouse in a divorce.
What Is Separate Property in a Divorce?
Separate property – sometimes called “non-marital property” – is anything a person owns (including real estate, bank accounts, objects, or other assets) that is or was acquired by them before marriage. Separate property can also refer to certain gifts and inheritances obtained while married.
Assets that were purchased by one spouse using their “separate property funds” during the marriage may also be their own separate property. And, assets acquired after a divorce (or in some cases during separation but before divorce), are also the spouse’s separate property.
When property is considered “marital property”, the spouses must share or divide their interest in the asset, either at death or divorce. But “separate property” is not shared, and it is not divided in a divorce.
#1. Leave your spouse’s name off of any pre-marital bank accounts, deeds or titles.
Once a spouse’s name is added to pre-marital accounts, deeds or titles, the ownership of that property becomes jointly owned between the two of you. Rather than change the title, it may be wiser to consider simply designating your spouse as a beneficiary, or the person that title will transfer to upon your death. That way, sole ownership is preserved by you, while still allowing for transfer upon your passing if you die before your spouse.
#2. If you inherit money or property, don’t transfer it to a marital or joint bank account.
An inheritance is considered to be separate property, unless it becomes commingled with joint accounts or funds earned during the course of the marriage. Remember: Any money earned during the marriage that is deposited into a joint account is classified as marital property. And any money transferred into that joint account is presumed to be jointly held as well.
Attorneys suggest that if you have money in an account prior to the marriage, retain that separate account, and open a new account for joint deposits. Set up this way, if you were to receive an inheritance, you can deposit that money into your premarital separate account and retain its separate ownership.
Alternatively, when you receive an inheritance, you can open up a new account in your name only in which you can deposit the inheritance, thus maintaining its separate property status.
#3. Keep careful records of the flow of money.
If you sell pre-marital property during your marriage, you will need to keep careful records of where the proceeds were deposited, how that money was spent, and whose name is (and is not) on the account. That makes tracing the funds easy in the event you are trying to prove that those funds are pre-marital separate property, and that your spouse has no right to them in the event of a divorce.
Divorce attorneys agree that one of the biggest challenges in a divorce is tracing how and when money or property was acquired. A husband or wife may argue that a key asset was bought with funds received from either the sale of pre-marital property or money received as a gift from a parent. But if there is no clear documentation as to where the money came from, it is very difficult to prove that the money or property in question is a separately held asset.
By creating a clear and complete paper trail of where the money came from, how it flowed through your accounts, and what it was used for, you will greatly assist your attorney in proving its proper classification as separate property.
#4. Be prepared to give your divorce attorney copies of the documentation as early as possible.
Many clients assume that because they did not keep money separate during the marriage, there’s nothing they can do about it. This may not be true. If you give your attorney time to review your documentation, it may be possible to reconstruct a paper trail even at this late date.
The more your attorney knows, the more documentation she has, and the sooner she has it, the better your attorney can represent you.
#5. Have an attorney create a pre-nuptial agreement.
Nobody goes into a marriage contemplating that it may end in divorce. However, if you have a good amount of premarital property, it is wise business sense to create a pre-nuptial agreement that clearly defines what each spouse owned prior to the wedding. A good “pre-nup” will clearly spell out how separate property will be treated during the marriage, during any possible divorce proceeding, and upon the death of one of the spouses.
Of course, any pre-nuptial agreement with which you are presented should always be reviewed by an attorney to be sure that it is both fair and equitable, and reflects the understanding of both parties.
Oakland County Divorce Attorney
Ideally, these guidelines would have been considered well prior to the wedding day, rather than in the midst of a looming divorce. However, it is never too late to begin compiling records establishing a paper trail for premarital assets.
If you need help in analyzing and understanding your personal or private property – or you want to learn how to protect your separate property before or during a divorce – contact experienced Oakland County divorce attorney Starla Zehr.