§ 6.05 Rents and Profits from Separate Property

• Jurisdiction: United States
• Publication year: 2021

§ 6.05 Rents and Profits from Separate Property

[1]—In General

It was previously mentioned how "rents and profits" from separate property differ from "appreciation" of separate property.²¹⁹ The distinction can be significant, since a number of states characterize these two types of property differently. Common examples of transactions that create "rents and profits" are interest on bank accounts or investments, cash stock dividends²²⁰ and real estate rents. "Rents and profits" refer to net profits, not gross profits.²²¹ If separate property livestock has offspring, the offspring could be treated as a rent or profit.²²²

[2]—States With Express Statutes

A significant number of statutes expressly address how to characterize separate property appreciation.²²³ In contrast, only a few statutes mention rents and profits. These enactments generally provide that rents and profits of separate property are separate property.²²⁴

[3]—States Without Express Statutes

Most statutes make no provision for rents and profits. In such states the general characterization approach will probably be quite important. For example, under the "implied exclusion" approach,²²⁵ rents and profits would be characterized as marital property. The rents and profits are acquired during marriage, and they are not specifically defined as separate property.²²⁶

A policy-oriented analysis could yield a different result. Many types of rents and profits, such as interest on investments or stock dividends, do not require any effort by the owning spouse. In other situations, such as real estate rents, a spouse sometimes does render services in connection with the management of the property. A workable approach could be to consider rents and profits from separate property to be marital property only if substantial efforts were rendered by the spouse in connection with the acquisition of the rents and profits.²²⁷ Some states have rejected this analysis and concluded that rents and profits from separate property always are marital property.²²⁸

[4]—Gifts Distinguished from Rents and Profits

Sometimes it is difficult to determine whether property is a gift or a rent and profit. For example, a spouse can be made a beneficiary of a trust. The trust corpus will then earn income. If the spouse would have directly received the gift, it would have been considered separate property, and the income from it would be a rent or a profit. The trust complicates matters, since a trust payment could include some corpus and some income.²²⁹ If the spouse only receives a right to the income, it may simplify matters and permit the courts to treat all payments as a gift.²³⁰

[5]—Community Property States

Community property states have adopted absolute rules. Rents and profits are either always separate property, or always community property, depending upon the state involved. A minority of the community property states have adopted the Spanish rule that rents and profits are always community property.²³¹ Other community property states have reached the opposite conclusion.²³²

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