Divorce: Is a Diamond Really Forever?

Divorce, Relationships

marital vs non-marital assetsWhen fighting over who gets what during a divorce, you know there are rules that outline who gets the house, the kids, and the dog. But who gets the dog, the cars, and the debt? And do you have to give your wedding ring back?

Marital vs. Non-Marital Property

Your marital estate includes any assets or debts you and your spouse acquired during your marriage with marital funds. Each spouse is deemed to have an equal interest in these assets or debts, no matter how property is titled or held (no matter whose job pays for what, or who incurred debt). So even if your spouse has credit card debt in their name only, divorce won’t help you escape paying it off.

Non-marital assets – usually outlined differently from state to state – can include anything owned premaritally – although assets owned premaritally but for which a loan was paid off during the marriage might be considered a marital asset. Other non-marital assets might include gifts acquired by one partner during the marriage, personal injury proceeds, or (for some states) proceeds from Social Security benefits, worker’s compensation, or disability. Assets that would normally be considered part of your marital estate could remain yours only if outlined accordingly in a prenuptial agreement.

Although certain property might be yours to begin with, it can become marital property if you “commingle” it with martial property. For example, if you owned a condo before your marriage but added your spouse to the title, or if you deposited your inheritance into a joint bank account, the asset is now considered part of your marital estate.

Who Gets What?

Engagement and Wedding Rings – If the wedding is called off, the person who gave the ring (conditionally, in contemplation of marriage) gets it back. If the wedding happens, the recipient of the engagement ring went through with the marriage, so it now belongs to them. Any gifts received during the marriage need not be returned after divorce. However, a wedding ring (as opposed to an engagement ring) is considered marital property (unlike an engagement ring) and therefore can be among the pile of to-be-divided divorce property.

Inheritance is considered a non-marital asset no matter when it is received (unless of course it was left to both the husband and wife). Gifts designated for one person are also considered non-marital, so all your birthday presents are safe.

Stocks are considered marital property, especially where they are received as part of employment compensation. Although only one spouse’s name is on the account, stocks and 401K plans are considered joint property. Courts will determine how stocks are divided based on your date of separation. To keep from losing more money, postpone contributing to your retirement account until after your divorce is finalized.

Appreciation – It’s important to understand the difference between active appreciation and passive appreciation when it comes to marital property. If you own something premaritally but you improve it (increasing its value) during the marriage, it could now be considered a marital asset since the improvement was made with marital funds. Therefore, improvements made to your car (regardless of who paid for them) during the marriage could make the car part of your marital estate. However, “passive” appreciation – such as an increase in the value of your home despite not making any improvements during the marriage – won’t change the status of a non-marital asset.

Property – Even if you are not awarded your martial home, your name will likely remain on the home loan, affecting your credit and ability to obtain loans in the future.  Be sure to get a requirement for refinancing — without your name on the loan — in your divorce.

Understanding how things are divided in a divorce is important to know if divorce is imminent. Keep  inventory of what’s yours, hold off on contributing to marital property that will be divided during divorce, and stop wasting time fighting over who gets what (leave that to the law).