How Does Separate Property Become Marital Property in Minnesota?
In Minnesota, all property acquired by either spouse during a marriage is presumed to be marital property, subject to an equitable division upon divorce. However, separate property acquired before the marriage or received as a gift or inheritance during the marriage remains the spouse’s individual property. Though initially separate, separate property can become marital property through actions like commingling assets or using separate funds to improve marital property.
Understanding how separate property can transform into marital property is crucial for spouses looking to protect assets in a Minnesota divorce. At Martine Law, our experienced Minneapolis divorce attorneys can help you understand marital versus separate property classifications and how to safeguard your separate property throughout the divorce process.
What is Considered Separate Property in Divorce?
Separate property refers to assets and debts that spouses acquire before marriage or receive as a gift or inheritance during marriage. It is considered the individual property of one spouse only. Here are some common examples of separate property:
- Assets or property owned by either spouse prior to marriage. This includes real estate, financial accounts, businesses, vehicles, jewelry, and personal possessions.
- Inheritances received by either spouse from a third party before or during the marriage. Inheritances are not jointly owned and remain the recipient’s separate property.
- Gifts given to one spouse by a third party, such as a family member or friend. Gifts are meant for that individual and stay separate.
- Settlement proceeds or damages awarded to one spouse for personal injury, workers’ compensation, social security disability, or a lawsuit. These funds belong solely to the injured spouse.
- Assets purchased by one spouse with separate property funds. It remains separate if you use only your own money to acquire an asset.
- Property that is excluded as separate by agreement. Spouses have the option to enter into a prenuptial or postnuptial agreement designating specific property as separate.
The key defining characteristic of separate property is that it is owned singly by one spouse through no effort or contribution of the marital community.
What Makes Property Marital vs Separate?
Marital property, also known as community property in some states, refers to assets and debts acquired by either spouse during the marriage. This property belongs to both spouses jointly. Some examples of marital property include:
- Income earned by either spouse during the marriage. This includes salaries, wages, bonuses, commissions, tips, and royalties.
- Assets purchased using marital funds. If you buy a house, car, jewelry, furniture, art etc, with money earned during the marriage, it is jointly owned.
- Retirement accounts like 401(k)s and IRAs were funded with marital earnings. Pension benefits are also typically considered marital property.
- Appreciation in value of separate property. If a spouse’s separate asset increases in value during marriage, that appreciation may be divided.
- Debt incurred by either spouse during the marriage, such as credit cards, personal loans, mortgages, and tax debt.
The key factors that make the property “marital” are the joint contribution and the period in which assets were acquired or debts were incurred. All assets and earnings generated through the efforts of either spouse within the marriage are generally deemed marital property subject to division.
How Can Separate Property Become Marital Property in Minnesota?
While separate property is meant to remain individual property, there are instances where it transforms into marital property in Minnesota:
Transferring Title from Individual to Joint Names
If a spouse transfers the title of an individually owned asset like a house or car into both spouses’ names, it indicates intent to share ownership. This transfers the separate property into marital property belonging to both.
However, simply adding a spouse to a bank account title for convenience does not necessarily make it marital property. Look at intent and how the account was used to determine if transmutation occurred.
Commingling of Separate and Marital Property
When a spouse’s separate funds are mixed or commingled with marital funds, it can become marital property. For example, depositing inherited money into a joint checking account containing marital income.
However, commingling itself does not automatically change separate property to marital property in MN. The spouse must demonstrate intention to gift the property to the marital estate.
Using Separate Property to Improve Marital Property
If a spouse utilizes their separate property to pay for improvements, maintenance, or debt payments on a marital asset, the separate property can gain marital interest.
For example, using inherited money to renovate the marital home or pay down the mortgage. This could make part or all of the inheritance marital property.
Appreciation of Separate Property During Marriage
Any increase in the value of separate property during marriage is considered a marital asset in Minnesota. For example, suppose a spouse owns a business prior to marriage, and the business doubles in value during the marriage due to market conditions and the spouse’s efforts. In that case, the appreciation is deemed marital property.
Separate Property Used Regularly for Family Expenses
When a spouse regularly utilizes their separate income or assets to pay for family expenses, it indicates intent to benefit the marriage. As a result, the separate property used for family expenses acquires a marital component.
Occasionally, using separate property for family expenses does not necessarily make it marital property. The usage must be recurring and substantial.
Why Does the Separate vs Marital Property Distinction Matter?
Classifying assets and debts as separate or marital is critically important for a few reasons:
- It determines ownership and division. Separate property is awarded to the owner’s spouse, while marital property is divided equitably.
- It impacts the value of the marital estate. The marital estate only includes marital property. Separate assets and debts are not factored in.
- It can affect alimony awards. In some states, the court considers separate property a financial resource.
- It creates a rebuttable presumption. Marital property is presumed to belong to both spouses equally, while separate property belongs solely to the title-holding spouse.
Proper categorization carries legal weight and helps ensure an accurate and fair distribution of property. Mischaracterizing property provides grounds for appeal.
How is Property Divided in Divorce?
Most states follow the rules of equitable distribution, which aims for a fair division of marital property based on the particular circumstances of the marriage. The court will look at various factors, including:
- Length of the marriage – The longer the marriage, the more fair an equal division of assets.
- Each spouse’s contribution – This includes financial contributions as well as nonmonetary contributions as homemaker, parent, or caretaker.
- Age, health, employability, and income of each spouse – The court aims to avoid leaving one spouse destitute.
- Custody of minor children – The primary residential parent may get a larger share of the marital home or assets.
- Each spouse’s separate assets – If one spouse has more substantial separate property, the other may get a larger share of marital property.
- Behavior during the marriage, like hiding assets or wasting money. This can impact distribution.
- Other case-specific factors like taxes, legal fees, and anticipated division of retirement benefits.
While the exact division percentages vary, many couples end up with close to a 50/50 split of the marital estate. However, equitable does not always mean exactly equal.
How Can I Protect My Separate Property in My Minnesota Divorce?
If you want to shield gifts, inheritances, premarital assets, or personal injury awards from equitable division in your divorce, here are some tips:
- Maintain documentation showing the separate property source, such as account statements, deeds, inheritance paperwork, or evidence of the original purchase price.
- Keep separate property titled only in your name. Do not add your spouse.
- Do not commingle separate property into joint accounts containing marital funds. Keep assets segregated.
- Avoid using separate property to pay debts, repair, or improve marital assets.
- Seek advice from an experienced family law attorney at Martine Law if you have used separate funds to improve marital property. We can help you limit the marital interest.
- Ask your attorney about setting up a separate property trust or postnuptial agreement to define separate property.
Get Legal Guidance on Protecting Your Assets in Divorce
Classifying property as marital or separate is complex but vital in determining an equitable distribution upon divorce in Minnesota. To safeguard your assets, turn to the dedicated Minneapolis divorce lawyers at Martine Law. We have extensive experience identifying, valuing, and classifying both marital and separate property.
Our attorneys will advise you on preserving proven separate property while achieving a fair overall settlement. Don’t let unclear property rights cost you the assets you brought into the marriage. Schedule a consultation with Martine Law today.