One of the biggest questions in divorce litigation is often “who gets what?” Under New York law, when a couple gets divorced, the courts will utilize what is known as “Equitable Distribution” to divide up the parties’ martial property. Additionally, each party will get to keep their own “separate” property. Understanding what constitutes separate and marital property for the purposes of a divorce judgment is crucial for all litigants. However, there is often a great deal of confusion about what property is “separate.” Therefore, outlined below is a basic overview of what qualifies as separate property in a New York divorce.
The first part of dividing up the parties’ assets, which should be clearly explained to any party by their lawyer or attorney, is determining each person’s separate property. Once the lawyers or attorneys, the parties, and the court know what each side is definitely keeping for themselves, they have a better perspective on how what’s left (the “marital estate”) may be divided. A common mistake that litigants make is assuming that if an asset is in their name alone, or they paid for all of it themselves, that that item is automatically “separate” and not eligible for equitable distribution by the court. However, under New York law, “separate” is defined as follows:
1. PROPERTY OWNED BEFORE THE MARRIAGE
In other words, money earned or items purchased (cars, houses, boats) before the wedding will, unless one of the exceptions (to be explained later) applies, remain your property after the divorce.
2. INHERITED PROPERTY
Any money you inherit from a third party, whether before or after the marriage will also remain yours after a divorce, unless, once again, an exception applies. It is important to note that with respect to other gifts received from third parties, unless a gift is only usable by one spouse or clearly and specifically designated as being for one particular spouse, all gifts are presumed to be for the couple together and thus become marital as opposed to separate property.
3. COMPENSATION FOR PERSONAL INJURIES
If you slip and injure yourself at the store, or are in a car accident, and receive a hefty financial settlement, so long as you keep it separate from marital funds, it stays yours after the divorce, even if the injury took place after the wedding.
4. PROPERTY ACQUIRED WITH SEPARATE PROPERTY
For example, if you bought an apartment before your marriage, then sold that apartment after your marriage and bought a boat with the money from the sale of the apartment, that boat, like the apartment is separate property because it was purchased with separate property that was converted to separate cash.
PROPERTY IDENTIFIED AS SEPARATE PROPERTY BY WRITTEN AGREEMENT.
This is where pre and post nuptial agreements come in. Two people who are or are getting married can enter into a legally binding contract, that, in the event of a divorce, they waive the right to certain income or assets or property that otherwise would have been part of the “marital estate” and subject to equitable distribution in a New York court.
As mentioned above, there are, however, exceptions to these basic separate property rules. Those exceptions include:
1) Appreciation in value of separate property where the other spouse contributed to the increase in value.
In other words, if the value of your separate property increases because of, at least in part, contributions from your spouse, that increased value is subject to equitable distribution. For example, if your premarital business increased in value because your spouse helped promote and advertise the business, they are entitled to part of the amount the business increased in value.
If you mix separate property (such as premarital money) with marital property, and it becomes so intermixed it’s impossible to trace the exact amount back to the original separate source, the entire asset or amount of funds becomes marital property. Therefore, every lawyer or attorney will tell their clients in a divorce case not to mix any funds, or to look for mixed funds if they are trying to establish that their spouse’s “separate” property actually belongs to both of them.
3) Deliberate Dissipation of Marital Assets
If one spouse deliberately uses up all of the martial assets to pay their expenses in order to protect their separate property, the court will sometimes penalize that party and have the party that did not misbehave compensated.
Overall, if you are contemplating divorce and are unsure what is and isn’t separate property under New York law, speak to a lawyer or attorney who can help you determine how your assets fall under these guidelines. Most importantly, if something is clearly separate, always keep it that way until the divorce is finalized.