Why it matters.
Divorce and Separate property; it can be simple or complex. As with all things divorce, their are a variety of things to consider.
Expect the strange words “Separate Property” to come up during the data gathering phase of your financial discussions, either with your lawyer, or your CDFA. What is “separate property” and why does it matter?
Separate property is property that does not have to be divided during the divorce process. It is generally noted in the various financial documents as “Separate Property. Each state has specific laws around this, but in general, separate property is an asset (or debt) that existed prior to your marriage and came with you into the marriage. Some states also include gifts and inheritance. Some states require inheritances to have remained segregated and not co-mingled with family funds in order to be considered separate property.
If the boat in the photo above was owned by one of the parties prior to the marriage, it is likely considered separate property. As with everything 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 the separate property valued at its’ original condition or the current condition and the difference marital property?
Another common scenario is one or both spouses have accumulated balances balances, sometimes substantial, in a 401(K), IRA, or already have years accumulated in a company pension plan and they bring those assets into the marriage. Often, additional funds are added to those assets during the marriage. How do you determine the separate vs the marital portions? Are you required to value the pre-marital (separate) portion? What about just agreeing it’s all marital property and not separate for simplicity sake?
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. From a financial perspective, you may want to be sure those are noted in the decree and they are 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 also need to calculate the Pre-marital, marital, and post marital portion so only the marital portion is divided.
If you’re not a financial type, your head is probably hurting 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. Next, add this to your list to discuss with your team so the appropriate legal and financial details can be addressed. And, finally, don’t neglect emotional attachments and feeling 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.