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What Assets Are Protected from Divorce Settlements
Family courts around the country recognize that spouses own some property that is separate from what they accumulated as a marital couple. Those assets that comprise the marital estate are subject to division at the time of divorce while separate property is generally excluded from a divorce award.
The property that a person brought into the marriage is usually off-limits to the other spouse. However, this can change if the old property has comingled with marital property. For example, a bank account can become comingled property if the other spouse was added to the account or funds were used from the account that make transactions indistinguishable between separate transactions and marital transactions.
Additionally, premarital property that increased in value due to the contributions of the other spouse may provide the basis for an award to the other spouse. States vary on how they treat this issue.
Gifts and Inheritances
Most states recognize that property that is acquired by an individual as a personal gift or inheritance is separate property not subject to division. However, most state laws mandate that the spouse who wants to treat property as separate property has the burden of proof of proving such. For example, the spouse may be required to show a will or deed in which the property was given only to him or her and not to the spouses as a couple.
States are either equitable distribution states or community property states. In community property states, the law recognizes that property that was earned or acquired during the marriage is property that is jointly and equally owned by both spouses. In community property states, the courts typically exempt property that was owned prior to the marriage, received as a gift or received as an inheritance. This usually includes any income that was derived from a separate asset.
In equitable distribution states, the court evaluates from where the property derived to determine its owner. Equitable distribution states may look to the legal title of an asset to help determine whether it is a marital asset or separate asset. In equitable distribution states, premarital property, gifts and inheritances are usually excluded from division.
The central component that makes community property states different from equitable distribution states is how the court treats marital assets. In community property states, the court assumes that the assets are owned 50/50. Equitable distribution states strive to distribute the assets in a fair manner, even if doing so does not make an exact 50/50 split.
Equitable distribution states may provide an asset that was acquired during the marriage solely to one spouse. They may even order that certain separate property be given to the other spouse, as long as state law is followed. State law may require that the family judge provide a written statement regarding why separate property was distributed to the other spouse. Alternatively, state law may allow the property to be distributed in this fashion if the other spouse caused waste to marital assets by gambling away the funds or if the other spouse committed adultery and spent marital assets on the affair partner.
Equitable distribution states can also look to a variety of factors in determining what is a fair division of property. For example, they may consider what separate property each spouse will have after the divorce, how much spousal and child support has been awarded and the length of the marriage.
Property per an Agreement
If spouses do not like the default rules that their state uses, they are free to negotiate this issue among themselves. This may be completed at the time of divorce through the process of mediation or negotiation. The spouses may reach an agreement regarding how their property should be divided. The judge may incorporate this agreement into the divorce decree.
Alternatively, spouses may come to an agreement before their marriage. For example, they may enter into a prenuptial agreement that states how property will be treated in case of divorce or the death of one of the parties. Prenuptial agreements often have specific procedures that must be followed, such as disclosing certain financial information and being informed of the recommendation to seek independent legal counsel, in order to be enforceable. A postnuptial agreement is similar, but it is entered into after the couple is already married.