Property Division

When Is Property Considered“Non-Marital?

Non-marital property includes all property acquired by either of you prior to your marriage. It also includes property you acquired by inheritance or by gift from a third party. Finally, property can become non-marital by a "valid agreement” between thethe two of you.  The term "acquired" is a term of art under the Marital Property Act.  Essentially, it refers to the value of the property, not to its title.  For instance, if Henry owned a $100,000 house subject to a $50,000 mortgage prior to his marriage to Wanda, and during his marriage to Wanda, the principal on the mortgage was reduced by monthly payments made during the marriage from Henry's earnings, then some of the value of the house was "acquired" during the marriage, and the house is part marital and part non-marital.  The same would be true if Henry owned an automobile titled in his name prior to the marriage and made payments on the automobile loan during the marriage which increased the value of the automobile.  If Henry and Wanda invested money which had been earned during the marriage into Henry's house, and the investment increased the value of the house, then the increase in value is "marital" because it is attributable to the marital funds which were used to make the improvements.

Acquired By Inheritance Or Gift From A Third Party

Gifts are "non-marital" only if they are received from a "third party".  Gifts from one spouse to the other made during the marriage are "marital property", because spouses are not "third parties".  So when Henry and Wanda exchange jewelry at Christmas during the better days of their marriage, during their divorce each must account for the value of the jewelry in their possession!  As an aside, the engagement ring which Henry gave to Wanda prior to the marriage is "non-marital" property because it was "acquired" by Wanda prior to the marriage as per (1) above!

Excluded By "Valid Agreement" Between The Parties

Spouses can, prior to the marriage, during the marriage or after a separation, agree that any specified property is to be categorized as "non-marital".  For example if Henry and Wanda decide to separate, to sell their jointly title home and to then equally divide the proceeds, and if Henry and Wanda each then invest their one-half of the net sale proceeds in stock titled in their individual names, the stock which each acquires will have been "acquired during the marriage" as per (1) above.  If Wanda then invests her proceeds wisely and her stock doubles in value by the time of the divorce proceeding, and if Henry invests wildly, and his stock is worthless, Wanda faces a possibility that Henry will assert a claim to one-half of the value of her stock.  To avoid that possibility, if assets are divided by parties during the separation, they should "by valid agreement" make it clear that each is entitled to deal with the property which they receive as they may wish, and that anything they thereafter purchase or invest with their share is to be designated "non-marital".  To re-emphasize an important point, Maryland Courts identify and value marital property as of the date of divorce, not separation.  If Henry were to win the lotto four days after his separation from Wanda, the winnings are "marital property".

Property Directly Traceable To the Above

If either spouse has non-marital property as per the above, and they thereafter sell, trade-in or exchange that asset for another asset, the newly acquired asset will be non-marital only if it is "directly traceable" to the original non-marital property.  What does this mean?  If the non-marital asset is "co-mingled" with marital property, there is a risk that the combined asset will be treated totally as marital.  For instance, if Henry has a $10,000.00 bank account titled in his sole name when he marries Wanda, it is clearly non-marital.  However, if Henry then deposits his $2000.00 paycheck into this account during his marriage to Wanda, the $12,000.00 account may no longer be "directly traceable" to the original $10,000.00 account.  If Henry wants to be sure that his $10,000.00 account is preserved as non-marital, he is much wiser to place it in a separate account, titled in his own name. During his marriage to Wanda, he should add nothing to it except the interest and earnings which might accrue on the account which he has created.  Another example:  If Henry's mother gives Henry $10,000.00 so Henry can purchase a house after he has married Wanda, Henry has a choice.  First, he could take a check from his mother and put it into the joint account which he and Wanda have maintained during their marriage.  When they arrive at settlement, Henry and Wanda would then write a check for the $10,000.00 down payment.  Assume their joint account had a $5,000.00 balance when Henry deposited the $10,000.00 check from his mother.  It is then impossible to say whether the $10,000.00 down payment came from the $5,000.00 of

joint marital funds or from the $10,000.00 gift from Henry's mother.  The funds have been "co-mingled", and there is no way to say that the house is "directly traceable" to the non-marital funds.  Henry would have been much wiser to have his mother write a check directly to the seller of the house, and to have his mother note on the check "gift to Henry" (so Wanda cannot thereafter claim that it was a gift to "us").  If Henry is really sharp, he will make certain that the house is titled in his name alone.

Increases In The Value Of Non-Marital Property

Care must be taken to distinguish between income from non-marital property which is attributable to inflation or to a change in market conditions and income which accrues by reason of the expenditure of marital funds or as a result of work furnished by either or both parties during the marriage. The increase in the value attributable to the former will not be considered marital. The increase in the value attributable to the latter may be categorized as marital. An increase in the value of a business attributable to the efforts of one of the parties is not marital property if that party was duly compensated for his/her services by way of salary or wages.

Remember: If the non-marital property is “co-mingled” with marital property, it may be converted into “marital” property”.  If a spouse wishes to protect the character of non-marital property, the non marital should be placed in a separate account and at no time should the recipient deposit into that account any of his or her earnings accumulated during the marriage, or any other funds or investments which have been accumulated during the marriage. 

 

 

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