§ 7.01 Property Acquired with Contemporaneous Separate and Marital Property Consideration

• Jurisdiction: United States
• Publication year: 2021

§ 7.01 Property Acquired with Contemporaneous Separate and Marital Property Consideration

[1]—Introduction

In so-called marital property states, the spouse's property generally is characterized by divorce courts based upon the time the property is acquired and the nature of the consideration used to purchase it.¹ For example, if property is purchased during marriage it is presumed to be marital property. However, if it can be established that only separate property was used to purchase the property, the presumption is rebutted and the purchase is considered merely an exchange of one type of separate property for another. The property received in the exchange would therefore remain separate.² Some complexity is added, however, if the property was purchased with some marital property and some separate property.

[2]—The Pro Rata Approach Applied in Community Property States

In general, community property states have solved the problem presented by a cash lump-sum purchase³ with some marital property and some separate property. Most of these states have accepted the idea that property does not have to be totally community or separate. The character of the property is determined according to the respective amounts of separate and community property contributed.⁴ If the property appreciates due to natural causes, both separate and community property share the appreciation based upon their respective ownership percentages.

This conclusion is not controversial or at all unreasonable. The definition of separate property normally includes property exchanged for separate property. If separate property is exchange for a portion of the price of some property, it seems unreasonable to treat that proportionate contribution any differently from the situation in which all of the purchase price is paid with separate property.

It might be argued that if some separate property and some community property are utilized to purchase an item, it reflects an intent on the part of the owner of the separate property to make a gift to the marital estate.⁵ Such an approach is pure fantasy. Most spouses do not focus upon the character of property expended until their first meeting with a divorce lawyer. It would not be consistent with the expectations of most spouses to conclude that a gift can be presumed from making a partial separate property contribution to a purchase.

[3]—The Unitary Property Approach

In Illinois⁶ and Louisiana,⁷ if both separate and community property are used to make a cash, lump-sum purchase, fractional ownership between the two estates does not result. The item is considered community property, and the separate estate is reimbursed for its contribution.⁸ New York may also accept this view.⁹

The unitary property concept does have some advantages. For example, if the property appreciates in value, the appreciation is all marital property. In contrast, if the property is considered partially separate, the separate estate would share in the appreciation on the condition the...