How Does Separate Property Become Marital Property?

Article Summary:

Separate and marital property are terms used to define ownership of property by either spouse before, during, or after marriage. Separate property can become marital property in a few ways, depending on how the property was derived, when it was received, and if the separate property has “commingled” with other assets. In most cases, all property received from the date of marriage will be considered marital property, except in cases of a unilateral transfer or gifts.

When people fantasize about marriage, they might conjure up an image of a white picket fence and a beautiful growing family. As they lay in bed dreaming of this perfect storybook marriage, they are probably not thinking about transmutation (the legal term for when a separate property becomes a marital property). It’s an important term to understand, though. With over 50% of marriages ending in divorce, transmutation and marital funds should be at the back of everyone’s mind. It’s imperative to understand how it works and what assets may be affected.

In most cases, separate property will be any property acquired by one spouse before the marriage. Once they say the marriage vows, everything acquired by either party will be considered marital property, with an important exception. Gifts or unilateral transfers, such as inheritance, can still be deemed separate property by the court system. All of this can get tricky depending on co-habitation, timing, family makeup, and other legal considerations, such as a prenuptial agreement. We’ll help you make sense of it below.

Separate property 101

Separate property and separate property assets consist of anything that belonged to one individual before the marriage or was received unilaterally as a gift or inherited. Let’s give an example of Tammy. Tammy has been married to Evan for five years, and they are going through a divorce in the year 2022 after getting married in 2018.

Tammy has four elements that she is claiming as separate property. These are:

  • 2016 Hyundai (purchased 2016)
  • Pokémon card collection (accumulated throughout childhood)
  • $100,000 inheritance left by a grandmother
  • Video camera (gift from brother)

Tammy’s Hyundai and Pokémon card collections were purchased before the marriage, so this is typically considered separate property. Furthermore, Tammy inherited $100,000 from her recently deceased grandmother and will be claiming a video camera gifted to her by her brother as a separate asset as well.

Martial property 101

Marital property is all property that is acquired after marriage. As long as you are not dealing with a unilateral transfer or gift, the minute you say “I do,” everything acquired after those words are considered marital property. Let’s take a part of Tammy’s list to see what she shares with Evan as marital property.

  • House
  • Joint bank account
  • Retirement plan
  • Wine collection
  • Rare Alaskan Malamute breeding operation

Once Tammy married Evan back in 2018, they set to work having a family and buying a home with a wine caller for their awe-inspiring wine collection. They also set some money aside for retirement as well as started a small business breeding Alaskan Malamutes. All of this would be considered joint marital property and, in the case of a divorce, would need to be split up. However, this is not as cut and dried as it sounds; sometimes, separate assets can become marital assets.

When separate becomes marital: commingling and transmutation

Sometimes separate assets become marital assets (transmutation) by becoming what is defined as “commingled.” Commingling occurs when married couples both utilize assets that are classified as separate assets and turn them into marital assets. Take Tammy’s 2016 Hyundai Excel, for instance. If Evan was the one driving it most of the time, he could fight to establish that in court and have the asset changed from separate into marital. It is here that the line between separate or marital property becomes fuzzy.

Obviously, during a marriage, people’s lives become intertwined with each other so distinctly that it is very difficult not to commingle. People share bank accounts, investment plans, mortgages, and a whole host of other items. For example, let’s say that Evan had built up an investment plan of $100,000+ before he met Tammy. If he were to put that investment plan into a bank that commingled with anything related to Tammy, even $10, Tammy could claim that $100k as marital property.

Equitable distribution of marital property

The majority of states will use what is termed the “rule of equitable distribution” to split assets in a divorce. This doesn’t mean 50-50; it merely means that the result of the divorce should be equitable for both parties. These are some of the factors a court might look at when defining what is equitable.

  • Duration of marriage
  • Child-rearing responsibilities
  • Age and emotional health
  • Spouse’s ability to earn
  • Economic consequences
  • Standard of living

Community property states and marital property

The United States has nine states that are considered community property states. These states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Community property states have laws that stipulate that half the income the other spouse earned and the debts that the spouse incurred during the marriage are jointly shared. Both parties are effectively taking the assets and liabilities that they incurred during the marriage.

Pro Tip

Different states will have different rules and regulations pertaining to what they consider to be separate property, marital property, or community property. Some states have a system of submitting assets and property to be classified as communal. It’s important to speak to an attorney in your state of divorce before you try to navigate the system.

Scared? Consider a prenup

There is one surefire way to make sure that your separate property stays separate throughout the marriage, and that is through the implementation of a prenuptial agreement. A “prenup,” as it is often called, is a contract between two parties agreeing to keep wealth and assets separate in some form or fashion.

Prenups can seem like romance killers but can actually bring a lot of relief to couples that are able to handle them in the right way and protect themselves. If this is an issue that has been on your mind and you want someone to assuage your fears, it’s best for both spouses to enquire with a lawyer.

Many people choose to merge their finances when they get married. Whether you decide to do this or not, you’ll want to explore money management tools to help you keep track of what’s coming in and going out.

FAQ

How does separate property become marital property in NC?

Chapter 50-13 of the North Carolina General Statutes defines marital property as “all real and personal property acquired by either spouse during the course of the marriage and before the date of separation,” and the property must be “presently owned.” Furthermore, if one of the spouses brings separate property and commingles it into the household for the benefit of each spouse, it can be considered marital property.

Is a house owned before marriage marital property in Illinois?

If the house is not commingled and is one spouse’s separate property, then it will retain its separate property status. If it is commingled, then it will be considered marital property.

Is my wife entitled to half my house if it’s in my name?

It depends on if it was commingled in any way. If she can prove in court that she was able to receive benefits from the house, she may be entitled to half the house as well as other martial funds.

Can I sell my half of the house without spousal consent?

No, under most laws, a spouse cannot sell any portion of a house without the consent of the other spouse.

How long do you need to be married to get half?

All judges will consider cases within the context of their own unique circumstances, so there is no set time or rule. That being said, it’s easier to claim half of an estate the longer you have been married.

Can a husband and wife live in separate houses?

Of course! They will both be split up equitably if the marriage heads for divorce.

Key takeaways

  • Separate and marital property are terms used to define ownership of assets before, during, and after marriage.
  • Separate property is anything that was acquired before marriage or given unilaterally through a gift or inheritance during the marriage.
  • Separate property can become marital property through a process called commingling, in which previous separate funds or assets become mixed together.
  • A prenuptial agreement is a smart way to avoid issues with ownership down the line.
View Article Sources
  1. Separation and Divorce – North Carolina Judicial Branch
  2. What Is a Prenuptial Agreement? – SuperMoney
  3. Happily Ever After: Protect Yourself Financially – SuperMoney