The Marital Estate
The marital estate is the property you and your spouse have accumulated during marriage. Nonmarital property is the money and property you bring into the marriage, the money and property you inherit, or the money and property given to you by someone outside the marriage.
Sounds simple, and sometimes it is. Suppose when you got married, you really didn't have much stuff. You had recently completed school and started a job, and you were renting an apartment. About the only things you had were a computer, your bicycle, some camping gear, and an old car that wasn't worth much. Your spouse had a cell phone, a bed, and a table. Family and friends gave you things as wedding presents: sheets, towels, silverware, a blender — typical wedding gifts. At this point, the sum total of your marital estate was the gifts you received as wedding presents. The items you brought into the marriage, modest as they were, were yours before the marriage and would be labeled premarital.
Some people are under the assumption that common law marriages are subject to the same laws as traditional, lawful marriages. This isn't necessarily true. While some states do recognize common law marriages, others don't. It's best to check out your state's laws to better understand your rights following the breakup of such a relationship.
If your marriage ended that first year, you would probably divide up the wedding gifts by each taking those that came from your family or friends. If your premarital stuff was still usable, you probably took it as well. Many brief marriages are this simple, so if your marriage lasted only a short time, consider going to your local self-help center and doing the divorce yourselves.
A More Complicated Situation
During your marriage you worked for a small start-up company that hit it big. Your salary increased rapidly, and soon you were making more money than you'd ever dreamed of. Your spouse had a decent job, too, but made a lot less than you do. To help you out in the beginning of your marriage, your parents gave you some money toward a down payment on a house. After you began to earn some serious money, you and your spouse also bought two new cars and a time-share in Florida. Eventually you bought new furniture and took some great trips, charging these big expenses on your credit cards.
The Good Years
After a few years of the good life you decided to add children to the picture, so you had two children, two years apart. The little company you work for continued to flourish, and you got bonuses consisting of money and stock options. Because you had the big income, you two decided your spouse would stay home with the children. Although you spent most of the money from your job, you did put some aside in retirement funds and played around in the stock market a bit. After you had been married eight years, your spouse's favorite uncle died and left her $10,000, which she invested. You bought a duplex to rent out and used the rental income to pay the mortgage and maintenance on this property. Your spouse did the hands-on managing of the property, including some repairs.
If you decide to divorce, you need to know about the potential financial consequences. For starters, what is the marriage property, the marital estate? All the things you purchased during the marriage using the money both of you earned are marital property. That would include the cars, the time-share, the duplex, the furniture, the retirement funds, and the stocks you bought with your income.
Divorce on the Horizon
While working on the duplex, your spouse developed a relationship with one of the tenants. Your spouse bought the tenant gifts and paid for them with the credit cards issued in both your names. One day you happened to open the Visa bill and discovered a charge for a watch you'd never seen. When you confronted your spouse, she admitted the affair, at which point heated words were exchanged, and she left the house.
Breakdown of Marital Assets
Staying with this hypothetical situation, the house may or may not be a total marital asset — it depends on the character of your parents' gift for the down payment. Typically, parents give money to the happy couple, but when the happy couple gets divorced, the parents sometimes remember they really gave this money to their child alone. Often the only proof of the parents' intent is to whom they wrote the check. If they wrote it to both of you, their gift will be considered a gift to both of you, and the entire house is a marital asset. On the other hand, if the check was made out to you alone, you can claim your parents gave you this gift, and this contribution to the value of the house would now be considered nonmarital property.
What about your spouse's inheritance from her uncle? It sure looks like a gift. Let's suppose your spouse actively played the stock market with that money, buying and selling on a regular basis.
If you bring property into the marriage or inherit property during the marriage and want it to remain yours, keep it clearly separate or keep very good records of how it's used; otherwise, it will become marital property to be divided with your spouse should you divorce.
In some states the active management of funds would define any increase in their value as marital property. But if your spouse simply bought GE stock, for example, and let it sit there, any increase in value would be characterized as passive, and the entire amount, including the original gift, would keep its nonmarital status. If your spouse put the stock into both of your names, however, the stock would change from nonmarital to marital.
Still Another Scenario
Let's change our facts a little. Suppose you owned a house before you got married, and shortly after the marriage you sold it to buy another, using the money from the sale of your house to buy a new family house. For the next eight years, you and your spouse made mortgage, tax, and insurance payments from money earned during the marriage. At the time of the divorce the house is worth a lot more than you paid for it. In such a case, many states will give you a nonmarital interest in the house from that initial investment, providing you have documents clearly showing you moved the money from your first house into the second.
