How to Protect Assets during Separation?

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 What are Marital Assets?

When a couple decides to separate legally, one of the questions they will face is how to divide their marital property. The best option is for them to come to a mutual agreement about who gets what, but for some couples, that is not an achievable goal. In that case, it will be up to the court to decide which assets belong to which spouse.

One of the most important concepts is the fact that all the property the couple owns is either a “marital” asset or a “separate” asset. As the names suggest, marital property belongs to both spouses and must be divided during the divorce or separation proceedings. Separate property belongs to only one of the spouses and will not be divided up in a separation.

There is a strong presumption under the law that any property obtained while a couple is lawfully married is marital property. It doesn’t matter which spouse or partner holds title to the property; as long as it was acquired during the marriage by either party, it is most likely to be considered a marital asset.

What Kinds of Assets Are Marital?

Typical illustrations of marital assets include:

  • Houses and other items of real property
  • Personal property (furniture, tools, clothes, and the like)
  • Cars
  • Bank accounts
  • Bonds, stocks, insurance, and pension plans
  • A rise in the worth of the couple’s current assets

Items such as the following are not considered marital assets:

  • Items obtained before the marriage. For example, a car you owned before you got married
  • Items that were inherited or given as gifts, whether before or during the marriage. For example, if an elderly uncle gives you his classic car before or after his death, that would be your separate property
  • Property acquired by one spouse during the marriage, but the other spouse never used it. For example, if you purchase a computer during the marriage and your spouse never uses it, it’s your separate property
  • Some lawsuit settlements or awards
  • Property that the partners have agreed in writing to be treated as separate property

How Do Courts Divide Assets in a Separation?

A second concept that is important to understand is the difference between “community property” states and “equitable division” states. Most states fall into the equitable division category, but Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin are community property states. In a community property state, there is a strong presumption that every piece of property belongs to both parties as community property. Marital assets include earnings, all property bought with those earnings, and all debts incurred during the marriage.

The identification of property as community property begins at the start of the marriage and ends when the couple physically separates from each other with the intention of ending the marriage. After that, any earnings or debts originating after this time will be considered separate property.

Typically, any assets bought before the marriage are considered separate property and are solely owned only by that original owner. But there are ways that property can become community property, sometimes without the spouses being aware of it. For example, if one spouse had $10,000 in a bank account before the marriage, that is separate property. But if the couple co-mingles that account with joint funds gained during the marriage (for example, that is the account that is used for depositing either party’s income), all of the money will be considered jointly owned community property.

In a community property state, In dividing up the assets, the court will give each party 50% of everything the couple owns.

In an equitable division state, the court will divide the assets according to its own evaluation of which party should get which pieces of property according to equitable distribution. Under these laws, the property may be divided case-by-case according to what the court determines to be fair or equitable. This can be determined through an examination of various factors, including:

  • How long the marriage arrangement lasted
  • Whether any specific property agreements between the spouses might affect the property distribution (such as a prenuptial or postnuptial agreement)
  • The financial condition of each spouse at the time they entered the marriage
  • The value of each spouse’s separate property, including a spouse’s business, business interests, retirement plans, 401(k) plans, stocks, bonds, etc;
  • Characteristics of each spouse, including age, employment, and health
  • The overall character and disposition of each person’s estate
  • How much each spouse contributed to the acquisition of marital property
  • The degree to which each spouse contributed to the education and earning power of the other spouse

Thus, property division for a divorce in an equitable distribution state might not follow an exact 50/50 split or division of the property. However, this is usually considered acceptable, as the court will seek to determine a division of property that is considered most fair.

How Should I Manage and Protect my Marital Assets?

Typically, couples do not plan on how to divide their property or assets in case a marriage fails unless they have already gone through a divorce.

In your case, if you bring considerable assets into the marriage, you will want them to remain separate property so that you can get them back when you break up. Below are some ways to develop a plan for managing and protecting your marital assets:

  • Creating a prenuptial agreement can avoid future disputes regarding property distribution after the marriage ends.
  • Make sure that you list any property you bring to the marriage that will remain separate property so that you will get it back after the divorce or separation.
  • Keep an accurate record of the nature of the separate property and what is intended to be gifts or inheritance during the marriage. This will deter arguments about it later on.
  • Try to keep all your own separate property away from the marital property to ensure there is no confusion caused by the alleged co-mingling of the assets.
  • It is important to remember that an increase in the value of non-marital property may be considered marital property in the future. For example, if you owned a home before marriage and it increases in value during the marriage because of your joint efforts to maintain and improve it, your spouse may be entitled to a portion of that increase in value.
  • This is true for any business that you owned before the marriage. Most likely, the business will remain yours, but if your spouse joins in and contributes to its financial welfare, your spouse will be legally entitled to a portion of the profit obtained during the marriage.
  • When purchasing the property that you want to be considered separate and your spouse is involved either in paying for it or maintaining it, that property may lose its characteristic as a non-marital property.
  • If you own a business, you can borrow against its receivables and place the money into a strictly business account.
  • Be transparent about your assets and how you want to manage them

What are Some Ways to Avoid to Ensure Property Stays Separate?

Here are specific ways for your property to remain separate property:

  • When there are marital debts, do not use any of your separate money to pay it off
  • Do not put marital property into a separate property bank account or vice versa
  • Place your money into your employer-sponsored retirement plan because it may be protected against division upon legal separation or divorce.
  • In general, treat your separate property as separate property. Make sure you inform your spouse that certain pieces of property are yours, not joint.

Should I Contact a Family Lawyer?

If you are considering a marital separation or your spouse has mentioned their intention of obtaining a marital separation, you and your partner should decide together how to divide your property. If you cannot agree about one or more items, it will be very useful to talk to a local family law attorney. The lawyer will give you important information about how your property would probably be divided if it is up to the judge to decide.

The attorney can provide a very useful service: negotiating with your spouse or your spouse’s attorney. Often, the parties’ emotions get caught up in matters that are mostly practical, and it becomes difficult to reach an agreement. An attorney can assert your rights coolly, with your best interests always in mind. This is especially important if you end up in court because you wouldn’t want a court hearing to become emotional.

Therefore, it may be useful to contact an attorney to get guidance on how to proceed and determine what steps are necessary to ensure that you can protect your assets during the separation.

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