Equitable Distribution in New York: Marital Property vs. Separate Property
New York is an equitable distribution state, which means that all marital property will be divided in a manner that is fair and equitable when a marriage ends in divorce. What this does NOT mean is that there will be an even, 50/50 split. Generally, property acquired during the marriage by either spouse will be subject to equitable distribution—regardless of whose name is on the asset. However, certain assets can still be protected as separate property.
“Separate property” is the term used to describe property that is exempt from equitable distribution. This includes any property that was acquired by either party prior to the marriage, gifts, inheritances, compensation for personal injury, and property obtained through an exchange for separate property or purchased with the appreciated value of separate property (unless the appreciation was due in part to contributions or efforts of the other spouse).
How Separate Property Can Become Joint Property
There are numerous exceptions to the separate property rule. First, this issue can arise when separate property is comingled with marital funds. If a gift is given to one spouse who then deposits it in a joint bank account, the gift becomes joint property—and, thus, subject to division. There is also an issue when separate property increases in value. Separate property may increase in value or produce income which could be subject to distribution.
If property acquired before the marriage appreciates, the increase in value may be considered marital property. A good example would be the increase in value of a stock portfolio. If the money was kept in the fund during the marriage, the increase in value might be considered separate property. If the same money was held in an actively traded account, however, the increase in value of the portfolio might be considered marital funds.
The rationale is whether the increase in value was due to active efforts by a spouse to increase the value of the portfolio or passive appreciation. While the statutory definition appears clear, numerous exceptions arise when separate property is commingled with marital funds, or is treated as a gift. The burden is on the party holding the property to prove that it is separate property. To avoid any confusion, consider a prenuptial agreement.
How to Keep Separate Property Separate
Ultimately, the burden to prove that any property is separate rests on the spouse claiming that the asset is separate property rather than marital property. To help protect separate property, ensure that the asset is always titled to you and is not mixed with any property that may belong, even partially, to your spouse or anybody else.
If you have any questions, or would like to discuss your options with a New York divorce lawyer at Eiges & Orgel, PLLC, please contact our firm today. We have more than 35 years of experience in family law.