Why it matters.
Divorce and Separate property; As with all things divorce, there are many things to consider and the details around your situation are important.
Expect the words “Separate Property” to come up during the data gathering phase of your divorce. Your CDFA will definitely ask about it, and most attorney’s will as well. What is “separate property” and why does it matter?
Separate property matters because it can be “set aside” and not divided as part of the marital estate. It is important to list on your financial statement and in the final paperwork so that it is addressed and not ignored. You don’t want it subject to litigation down the road. These items are most commonly described or noted on the various financial documents and financial affidavit’s as “Separate Property”. Occasionally you will see these items as pre-marital property or post-marital property. Your state laws govern the specifics, but in general, an asset (or debt) that existed prior to your marriage would be considered separate property assuming it was not co-mingled with marital property during the marriage.
If the boat in the photo above was owned by one of the parties prior to the marriage, it is likely considered separate property. However, as with everything divorce related, there are nuances and exceptions. What if the boat wasn’t seaworthy before the marriage and family funds were used to get it shipshape. Is some, or all, now marital property?
Common assets that come into the marriage as separate property includes balances from a 401(K), pension, IRA or investment account. It could also be equity in a home or rental property that was owned prior to marriage. What if the spouse was added to the deed at some point in the marriage? What if that home was refinanced in both names? Is the growth in a financial account that occurred during the marriage considered marital or separate? If some portion of an asset is deemed “separate”, what are the accepted calculations? Are you required to value the separate or pre-marital portion? What if you both just want to agree it’s marital property for simplicity sake? What if there are no statements or documentation from around the time of the marriage, but you are certain some is non-marital?
Separate property can also be the student loan debt you took out prior to the marriage, or the credit card debt racked up since your official separation date. It can be a heirloom dresser, you bought at a flea market in your single days, or a collection of baseball cards whose value is less about the money and more about the summer days spent collecting, cataloguing and discussing the intricacies of baseball with your grandfather. You may want to be sure to discuss with your lawyer and the items, if you don’t already have them in your possession, are noted in the decree and not disposed of before you can retrieve them from the storage closet in the marital home. Pensions, for those still fortunate enough to have them, normally require a special financial calculation anyway, and the formula includes determining the “coverture fraction” which is a fancy name for the marital percentage. Thus, the non-martial portion is the total pension value less the marital portion.
If you’re not a financial type, your head might be busting by now. If you think separate property may apply in your divorce, first look for any paperwork you have regarding the asset or debt and it’s value prior to your marriage. Second, do a quick internet search regarding separate property laws for your state. Third, add this as a discussion item with your legal and financial professionals. And, fourth don’t neglect your emotional attachments and feelings around these items and be sure to work through those with your coach or mental health professional.
Note: Nothing in this blog should be considered legal or financial advise. It is general information. Check with your legal and financial representatives for specifics in your state and for your specific situation.