§ 5.02 Determining What Is "Property"

• Jurisdiction: United States
• Publication year: 2021

§ 5.02 Determining What Is "Property"

[1]—In General

There is great confusion in family law regarding the appropriate analysis for determining the existence of property. For example, one source defines "property" as "that dominion or definite right of use, control and disposition which one may lawfully exercise over particular things or objects."³ The same source, however, cautions that "not every interest that one may have in a particular object is necessarily to be classed as property, although in a given instance that interest may constitute a valuable right."⁴

The confusion regarding the definition of property stems from the dramatic changes that have occurred in the types of rights that are valuable. Centuries ago, parties were primarily concerned about rights in tangible property. It is therefore not surprising that an eighteenth century definition of property related to such rights.⁵ The definition is phrased in terms of absolute control over tangible property. More recently, the definition of property has been greatly expanded to include, among other things, intangible rights.⁶ Still, the ancient discussion of property rights remains relevant. For example, a contemporary law dictionary defines property in this way:

'The term is said to extend to every species of valuable right and interest. More specifically, ownership; the unrestricted and exclusive right to a thing; the right to dispose of a thing in every legal way, to possess it, to use it, and to exclude every one else from interfering with it."⁷

There is general agreement that a person's rights in and to tangible property constitute "property." However, an increasing number of the valuable rights held by middle class individuals relate to things other than tangible property.⁸ For example, a person's career and various fringe benefits relating to it are quite valuable to that person. Examples include, for a professional person, a professional degree and the goodwill of a professional practice. Other examples of valuable intangible rights include a person's earning capacity, and certain fringe benefits relating to a job, such as seniority rights, stock options, pension rights, union membership, and paid vacation and sick leave time.

These rights are all valuable, but does that mean they are all "property" which should be valued and divided at divorce? Few state divorce statutes define what property means in this context. It should be emphasized that the issue presented here is not an absolute one regarding whether the rights referred to above are property. In different contexts, different policies are involved. It would not be at all illogical to call certain rights property for certain purposes, but not property for other purposes.

This is happening in U.S. law. For example, a number of courts have held that a professional license constitutes a "property right" when analyzing the holder's due process rights. In contrast, almost all courts have concluded that such a license is not "marital property," even if it is earned during marriage.⁹

[2]—Narrow Definition of Property

Many divorce courts have been reluctant to expand the scope of "property" to include intangible rights. Various standards have been proposed to limit the scope of what constitutes divisible property in a divorce action. For example, a California appellate court concluded that a medical education, as well as the concomitant increased earning capacity of the educated spouse, was not property, since it was not susceptible of ownership in common, transfer or survival.¹⁰ Similarly, the New Mexico Supreme Court concluded that a medical license was not property because it could not be jointly owned.¹¹ Most states would agree that if a spouse's earning capacity decreases during marriage due to the assumption of homemaking duties, this decrease in earning capacity does not create a property claim.¹²

Other courts have held that, in order to be property, the owner must be able currently to sell it or pledge it. Pursuant to this analysis, for example, neither a professional education¹³ nor a professional license¹⁴ is property. Professional goodwill also would not be property, if it couldn't be sold.¹⁵

In addition to these requirements, some courts have concluded that a right is not "property" if its enjoyment is contingent in any way. So, for example, the Texas Supreme Court concluded that the goodwill of a husband's medical practice was not property because its value depended upon his survival and future work.¹⁶ A similar rationale has been offered for why a contingent right to receive retirement benefits is not "property," but merely an "expectancy."¹⁷ Other courts have concluded that increased earning capacity,¹⁸ employee stock options,¹⁹ entrepreneurial skills,²⁰ potential inheritances,²¹ nonvested pensions,²² seniority rights,²³ a vested remainder subject to a condition subsequent,²⁴ unliquidated personal injury claims,²⁵ the possibility of receiving a broadcasting license after divorce when the license was applied for during marriage,²⁶ a right of first refusal to purchase corporate stock of other shareholders, when the right was acquired during marriage but the triggering condition had not occurred by the time of divorce,²⁷ a lawyer's right to collect a contingent legal fee after divorce,²⁸ timber growing on marital land,²⁹ sick leave benefits,³⁰ or a contingent right to receive money from a trust³¹ are not property.

Country club memberships present interesting questions regarding the nature of "property." A Maryland court concluded that a membership should not be included in the marital estate, because the membership could not be sold or redeemed.³² If the membership can be sold or the initiation fee refunded, it is much more likely that a court will find that the club membership is property.³³

Other courts have found club membership to be property even if there is no evidence it is transferable or refundable.³⁴

[3]—Broader Definition of Property

Some states have developed a broader concept of what constitutes divisible property. Contingent rights are considered property; the contingency merely reduces its value. For example, courts have concluded that increased earning capacity,³⁵ a possible future inheritance,³⁶ a contingent trust interest,³⁷ a professional degree,³⁸ a professional license,³⁹ and professional goodwill⁴⁰ all are divisible property. Other contingent rights acquired during marriage, such as a lawyer's contingent fee contract⁴¹ or an...