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What’s in a Name? The Distinction Between Separate and Martial Property

December 5, 2014

Absent a prenuptial agreement to the contrary, everything accumulated during a marriage, with the exception of gifts from third parties, inheritances, and personal injury awards, are considered marital property; title is not controlling.   This includes all income from employment received during the marriage.  Therefore, placing these monies into an account in your individual name will result in that account being considered marital property in the event of dissolution of the marriage.

This is a common misconception. Although many people know that inheritances or gifts received from third parties are considered marital property, a common mistake that people make is placing those funds into a “marital account”.  For example, during the marriage, the wife receives an inheritance of $20,000 from her father’s estate.  She places the funds into her individual savings account, which she has funded in the past with a small portion of her income, to pay for small items, including gifts for her Husband. Thereafter, she continues to fund and withdraw from the account in the same manner as she had throughout the marriage.   Unfortunately for the wife, in the event of termination of the marriage, her husband will have a strong argument that the $20,000 inheritance should be treated as marital property.  This is for two reasons: she placed the money into a “marital account” and she also continued to fund the account with marital monies.  When separate property is “commingled” with marital property, it can lose its separate property character and generally, will be considered marital property in the event of a divorce.

Therefore in the event that one party receives an inheritance or gift from a third party or receives a personal injury award, that spouse should open and deposit the funds into a new account. Thereafter, no additional funds should be deposited into that account. Otherwise, that separate property could lose its separate character.

Similarly, in the event that either spouse enters the marriage with premarital and therefore, separate property assets and a prenuptial agreement has not been executed, the titled spouse should take similar steps to protect those separate, premarital assets.  Keeping the assets in their individual name and not “comingling” them with marital assets or marital funds will help protect their separate character.

Another important distinction is that, while gifts from third parties received during the marriage will be considered separate property, gifts from the other spouse received during the marriage are considered marital property.   For example, if the wife purchases a new car for her Husband for his birthday using monies she received and set aside from her income and places the vehicle in the husband’s name, that vehicle will be considered marital property subject to equitable distribution.

New York is an equitable distribution state, which means that, in the event of a termination of the marriage, assets will be distributed equitably and not necessarily equally. For instance, the titled spouse of a business or a degree acquired during the marriage will generally be entitled to retain more than 50% of the overall value of that asset. The nontitled spouse’s direct and indirect efforts as they relate to those assets will determine the nontitled spouse’s interest during equitable distribution.

No one enters into a marriage with the intention of ending it and hopefully, most couples feel the same way for many years into their marriage.  However, everyone must recognize that people, things, and people can change.  Therefore, understanding the law and your rights is important in the event that things do.