§ 5.03 Determining What Is "Marital Property"
| Jurisdiction | United States |
| Publication year | 2021 |
§ 5.03 Determining What Is "Marital Property"
Some states permit a divorce court to divide all the property owned by either spouse. In most states, however, only "marital property" (community property in community property states) may be divided; each spouses retains his or her "separate" property. It is therefore vital in a marital dissolution matter to distinguish what property is marital property.
Most state statutes specifically describe each type of separate property. Marital property normally is then defined as all other property acquired by either spouse after the marriage.50 For example, the Colorado statute designates as marital property all property acquired by either spouse subsequent to the marriage except:
(1) Property acquired by gift, bequest, devise, or descent;
(2) Property acquired in exchange for property acquired prior to the marriage or in exchange for property acquired by gift, bequest, devise, or descent;
(3) Property acquired by a spouse after a decree of legal separation; and
(4) Property excluded by valid agreement of the parties.51
This is a fairly representative statute. Some states define separate property more narrowly,52 while others include in the definition other types of property, such as the increase in value of premarital property,53 income from separate property,54 recoveries in interspousal actions,55 personal injury recoveries,56 professional licenses,57 and nonvested pensions.58
Because most equitable distribution statutes are relatively recent enactments, it is unclear how the states will determine whether property is separate or marital. In contrast, all community property statutes have been in force for quite some time. It is therefore instructive to consider how these states determine whether property is community or separate, since the community property statutes are quite similar to the equitable distribution laws.59 For example, Texas defines "separate property" as property acquired before marriage, or property acquired during marriage by gift or inheritance, or as a personal injury pain and suffering award. All other property acquired during marriage is community property.60
Two general approaches are used in community property states to determine whether property is separate or community. One approach is what might be called strict statutory construction or the implied exclusion approach. The other is a marital partnership analysis, in which the court attempts to determine whether the property was earned due to the labor of either spouse during marriage.
[1]—The Implied Exclusion Approach
The strict statutory construction approach, also called the implied exclusion approach, treats the statutory definition of separate property as exhaustive.61 Under this theory, if a type of property is not referred to in the statute as separate property, or is not received in exchange for such property, it is normally considered community property.
Despite the apparent simplicity of this test, complications can arise. For example, the Texas Supreme Court considered whether a personal injury award for pain and suffering was separate or community property, and concluded that the recovery was separate property.62 One rationale offered was that the award was a payment for damage to the spouse's body, something the spouse obviously acquired before the marriage.63
Courts applying the implied exclusion approach also consider whether the property received during marriage was received for post-divorce services. Compensation for post-divorce services is generally deemed separate property. For example, a payment received during marriage for a covenant not to compete after the divorce has been considered the recipient's separate property.64
Some equitable distribution states have applied the implied exclusion approach to characterize property received during marriage.65
[2]—The Onerous Acquisition Test
Other courts apply an affirmative test to characterize community property. Pursuant to this test, an item is community property only if the property is accumulated due to a spouse's efforts during marriage, or is paid in lieu of such property (e.g., a lost wage component of a personal injury claim).66 This test stems from the partnership underpinnings of the community property system. According to this partnership concept, the parties are considered joint owners of all property accumulated by the efforts of either during marriage. Property that is not accumulated due to time, toil or talent is not considered an asset of the partnership. Property accumulated due to the efforts of either or both spouses is sometimes called an "onerous" acquisition. Property not accumulated as a result of efforts is sometimes referred to as a "lucrative" acquisition.67
A few equitable distribution courts have applied the onerous acquisition test to characterize property acquired during marriage.68
[3]—The Marital Property Presumption
Presumptions can affect the characterization process. A number of statutes include a presumption that property owned by either spouse at divorce is presumptively marital property.69 The presumption can be rebutted if the owning spouse can affirmatively show that the property is separate.70 For example, the spouse could show the property was inherited or purchased with separate property.71
The exact wording of the statutory presumption can be important. For example, in many states the presumption applies only if it is established that the property in question was acquired during marriage.72 This presumption does not apply unless evidence of time of acquisition is shown.73 The other type of presumption applies to all property possessed at the time of divorce,74 obviously a broader presumption.
[4]—When Parties Begin to Accumulate Marital Property
Marital property frequently is defined as all property acquired by either spouse during marriage that is not separate property.75 It is therefore not surprising that in most instances the courts have concluded that property accumulated before marriage cannot be marital property, as long as no marital funds or efforts are contributed to it during marriage.76 Therefore, marital claims would generally be limited to property acquired after the marriage began and before the divorce.77
Some courts have created exceptions to the general rule. For example, if a prospective spouse buys a house before marriage in his or her name with separate property, some courts have stretched the definition of marital property to include the house, if the house was purchased with the intent that it would be the marital home.78 Furniture bought before marriage for the marital home has been treated in the same manner.79
In those states, it seems unlikely that purchases before the parties became engaged would be included in the marital estate under this theory. For example, in a Missouri case the wife purchased a house eight months before the parties became engaged, and this was not considered a purchase in contemplation of marriage.80
An Illinois court ruled that if the groom's parents make a gift of a house before marriage with the intention that it will be the home of the newlyweds, this can make the home marital property.81
A credit purchase made before marriage, but paid for in part during marriage with marital property, certainly should create some marital claim for reimbursement or a fractional interest in the property.82 To the extent that separate funds were used, however, in a marital property state a separate property interest should also exist, unless the interest was given to the marital estate.
Some courts seem to believe that it is significant whether property purchased with separate funds before marriage was bought with the intent that it would be used during marriage. This is simply inconsistent with marital property principles. Property is characterized depending upon what consideration was used to acquire it. That is the character of the property, unless later changed by an interspousal gift. The parties' intended use of the property is irrelevant, unless it supports evidence of a gift.83 Property purchased before marriage should be totally separate property, unless some contribution of marital efforts or assets is made.
A similar problem arises when a party accumulated property during a cohabitation relationship and the parties later marry. Most courts consider such property separately owned, since it wasn't acquired during marriage or paid for with marital funds.84 Other courts have included property accumulated during a premarital cohabitation in the marital estate.85 Of course, a separate cohabitation claim could be joined with the dissolution action.86 A few courts have included within the marital estate property acquired before marriage if the parties were cohabiting and pooling funds.87 A New York court held that property acquired in both parties' names while the parties were cohabiting prior to marriage should be treated as marital property in the subsequent divorce.88
The Vermont Supreme Court has held a divorce court was not required to consider the parties' premarital cohabitation when determining the property division and spousal maintenance award.89
If courts treat premarital accumulation during cohabitation as marital property, this could significantly affect divorces in marital property states. For example, in an Alaska case the parties began cohabiting in 1988 before the wife's first divorce was finalized in 1989. They married in 1999 and the husband filed for divorce in 2006. The trial court included in the marital estate all property accumulated by either party due to effort after July 1, 1989, the date the woman's prior divorce became final. In affirming the trial court, the Alaska Supreme Court noted that there was a finding that the parties commingled their assets during their cohabitation.90 The Supreme Court stated that "in light of the evidence that the parties were an economic unit during their premarital...
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