Marital Property vs. Separate Property in Equitable Distribution

In equitable distribution lawsuits or property settlement negotiations it is usually simple to determine if an item of property is marital or separate. However, the actions of the parties or the timeframe of acquisition may complicate matters.  Resolving the question can be time consuming and involve looking for old documents or requesting records from various financial institutions.  In many instances the parties will end up with an item of “mixed property.”

Marital Property is defined by statute as “all real and personal property acquired by either spouse or both spouses during the course of the marriage and before the date of the separation of the parties, and presently owned, except property determined to be separate property or divisible property in accordance with (this statute.)  Personal property includes intangible property such as banking and retirement accounts as well as businesses and practices.

The definition of Separate Property is “all real and personal property acquired by a spouse before marriage or acquired by a spouse by devise, descent, or gift during the course of the marriage. However, property acquired by gift from the other spouse during the course of the marriage shall be considered separate property only if such an intention is stated in the conveyance. Property acquired in exchange for separate property shall remain separate property regardless of whether the title is in the name of the husband or wife or both and shall not be considered to be marital property unless a contrary intention is expressly stated in the conveyance. The increase in value of separate property and the income derived from separate property shall be considered separate property. All professional licenses and business licenses which would terminate on transfer shall be considered separate property.”

One of the most common complications is “Mixed Property” which occurs where there is a component of separate property and a marital component to the property. A perfect example is a bank account which contains money earned by Wife during the marriage and money inherited by wife during the marriage.  If the account receives only deposits, it is fairly easy to value the inherited portion upon separation; however, if money is taken out or items also purchased with the monies in the account, tracing becomes important.  The Husband meets his burden to show the property is marital by showing that the monies were physically acquired by wife during the marriage and before the date of separation and owned on the date of separation.  If Wife wants to claim a portion as her separate property, the burden shifts to her to trace the monies to show the separate component.  Tracing can be difficult, time consuming and expensive.  It may prove impossible to trace the separate component; in such cases, the entire account will be classified marital property.

Another issue is the matter of active versus passive appreciation of separate property. Passive appreciation of separate property includes increases in value due to market forces, such as interest on accounts.  Active increases include where a party has spent marital money for improvements to the separate property or physically maintained or improved an asset.  It again may be difficult for the person wanting the asset to be separate to meet their burden of proof as to the passive nature of the increase.

The burden on marital debt is different.  Here the party seeking to have the item classified as marital has the burden of proof showing that the debt was incurred by one or both spouses during their marriage and before the date of separation, showing the amount of debt owed on the date of separation, and that such debt was incurred for the joint benefit of the parties.  If the burden is not met on any one of these issues, it is a separate debt.

The Charlotte family law attorneys at Weaver, Bennett & Bland can assist you with understanding this and all other aspects of equitable distribution. For more information, view our FAQs on marital versus separate property.