§ 7.02 Different Approaches to Characterizing Property Acquired Over Time

• Jurisdiction: United States
• Publication year: 2021

§ 7.02 Different Approaches to Characterizing Property Acquired Over Time

[1]—Introduction

The characterization problems presented when marital and separate property are contributed contemporaneously toward the purchase or acquisition or an item¹⁶ are not as complex as those that arise when the property is acquired over a period of time, and not in one lump-sum payment. Several approaches have evolved to characterize property acquired over time with separate and marital property. This problem most frequently arises when one spouse buys a residence before marriage and makes mortgage payments during marriage with marital funds. Three approaches that are derived from community property precedent are the inception of title approach,¹⁷ the time of vesting approach,¹⁸ and the pro rata approach.¹⁹ A fourth approach is the previously discussed unitary property concept.²⁰

[2]—The Inception of Title Approach

Under the inception of title approach, sometimes referred to as the inception of right approach, a particular time is focused upon to determine the character of the property. The inception of title approach looks to the first time either spouse had any right to purchase the property. The property is then characterized based upon the consideration given at that time. Any later payments do not affect ownership, but merely create a reimbursement right.²¹ The inception of title approach has generally been the most popular approach in community property states.

The inception of title approach incorporates the concept of "reimbursement." Pursuant to this concept, if funds of one character (that is, separate or marital) are utilized to improve property of another character, the improvement does not affect the character of the improved property. However, the estate that contributed the funds for the improvement receives a refund of some or all of the amounts advanced.²²

[3]—The Time of Vesting Approach

The time of vesting approach, sometimes referred to as the time of receipt approach, also focuses on a particular time to determine the character of the acquired property. For characterization purposes, the time of vesting approach looks to the consideration given when title vested. Any payments made before or after that time merely create a reimbursement right.²³ Like the inception of title approach, the time of vesting approach incorporates the concept of reimbursement.²⁴

[4]—The Pro Rata Approach

The pro rata approach, sometimes called the source of funds approach or the tracing approach, considers all contributions for characterization purposes, not just contributions made at any one moment.²⁵ Under the majority view, all contributions are totalled, and the property is characterized based upon the ratio of the total separate and marital contributions. As a result, ownership can change over time pursuant to the pro rata approach, depending upon the character of the contributions. No reimbursement is received.

One important assumption of the pro rata approach should be emphasized. All dollars are treated identically; it does not matter when they were contributed. It could be argued that earlier payments should be given greater weight in light of inflation but this does not occur pursuant to the pro rata approach. All dollars contributed are treated identically for characterization purposes. A number of equitable distribution states have accepted the pro rata method.²⁶

Under the majority view, financial contributions by either spouse during marriage with funds saved from wages create a marital claim. Some courts have required the non-owner to make...