Divorce: Property Division FAQ Set II

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  • Can property acquired prior to marriage be divided upon divorce?

  • I used my separate money as a down payment on a home.  Can I recover the down payment on my home, or will it be split as marital property?

  • Is my soon-to-be-ex entitled to share in my severance package?

  • Is my wife entitled to half my workers' compensation settlement if we divorce?

  • My ex and I were never married, but we bought a house together.  What are my rights?

  • Is money that has been combined and then separated, subject to division as marital property?

  • Will I be entitled to any of the money in my husband's investment account?

  • My husband moved out two years ago and I stayed in our home, paying the mortgage and taxes and such. Will my estranged husband be entitled to the increased value of our home of we divorce?

  • Am I responsible for my ex-husband's misrepresentations on our joint tax return?

  • Am I entitled to any part of my husband's medical practice?

  • Can I appeal a property division court ruling?

  • Can I get rid of my financial obligations from my divorce in bankruptcy?

  • Will divorce automatically change the designated beneficiary of a life insurance policy?

    Q: Can property acquired prior to marriage be divided upon divorce?

    A: Generally, assets owned by either spouse prior to the marriage will remain that spouse's separate property after the marriage ends, and won't be distributed by a court as marital property. In some states, the court can define the starting date of a marriage as being earlier than the actual marriage date if it is "equitable" to do so.

    It's possible to handle separate property in a manner that causes it to be confused with property acquired after the marriage. Money is the best example of this. If you put separate money into a bank account with deposits and withdrawals, that money might become property of the marriage, and therefore be subject to division at divorce.

    A couple can also agree to change property from separate to marital.

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    Q: I used my separate money as a down payment on a home. Can I recover the down payment on the home, or will it be split as marital property?

    A: If you can trace the down payment to your separate funds, you have a good chance of recovering the money in the divorce. If the home was ever refinanced, the chances are reduced. Refinancing may make tracing more difficult or impossible. For example, if you put $10k down and the equity grew to $40k, it is quite possible that you can recover the down payment, and maybe even appreciation attributable to that down payment. However, if you refinanced the home and at the time of divorce there is only $5k in equity, you might not have a good claim to a recovery. Clearly, not all the down payment is there anymore. The question becomes which part of the $40k in equity is remaining, and that can be impossible to answer.

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    Q: Is my soon-to-be-ex entitled to share in my severance package?

    A: That depends on the specific facts. Since the marriage hasn't been terminated yet, the spouse likely has some claim to part of the package since the benefits of the package are being enjoyed during the marriage. For any part of the package that will only be enjoyed after the marriage is terminated, the spouse might not have any claim, because the divorce terminates the marriage, and therefore the right to share in the benefit.

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    Q: Is my wife entitled to half my workers' compensation settlement if we divorce?

    A: Quite possibly. If the settlement compensates you for any debt or harm accrued to you during the marriage and which normally would be considered as marital property, then she may have a claim to a share. The best example of that would be lost wages. If you are injured on January 1 and don't return to work until March 1, and get divorced on February 1, she may have a good claim to the money which compensates you for the wages lost in January.

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    Q: My ex and I were never married, but we bought a house together. What are my rights?

    A: Generally, ex-girlfriends and ex-boyfriends don't have specific property rights when they terminate their live-in or cohabitating relationship, nor do they have a right to support from one another. Their rights against each other depend mostly on whatever contracts they had between themselves.

    Many states hold that contracts between unmarried cohabitants "living together in contemplation of sexual relations" are unenforceable. However, several states are now recognizing the right of one of the cohabitants to be compensated for "unjust enrichment" or the improper acquisition of property or money by one person at the expense of another.

    If you are both on the deed, it will likely be presumed that you each have a one-half interest in the property, unless the deed indicates otherwise. In that case, claiming an interest greater than the specific percentage will require that you prove your claim to the greater interest.

    If you aren't on the deed but contributed to the property, you may have an equitable claim to reimbursement. If you only paid rent and utilities, you likely do not have a claim unless you can prove an underlying contract. You would have paid those expenses living somewhere else anyway.

    As a general rule, you should never buy property unless you are on record as an owner. Deeds are good indications of ownership, and laying claim to an interest in real property without being on a deed can be difficult and costly.

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    Q: Is money that has been combined and then separated subject to division as marital property?

    A: As long as you can properly identify the funds and trace their movement back and forth through the accounts, they should remain separate property that will be returned to you at the time of a divorce, rather than be divided as marital property.

    This can be very difficult where the accounts are subject to withdrawals, or where money is withdrawn to pay expenses. The question then becomes "Which money was withdrawn?" If that cannot be determined, it's possible the account will become marital property.

    In general, it is usually best to keep separate property separate, rather than counting on it being returned upon divorce.

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    Q: Will I be entitled to any of the money in my husband's investment account?

    A: Laws on this issue vary significantly state by state. In most states, property acquired through the "labor" of a spouse is usually marital. An investment account may or may not fall under that rule. States vary greatly on whether income from separate property is clearly marital, or must relate to a spouse's labor. If the account had dividends you reinvested, or just accrued interest, you may have some claim to part of the account.

    Investments into the account are likely marital property, assuming they don't come from a separate property source. Those investment amounts and their appreciation are likely divisible at divorce.

    Tracing funds through investments can be very complex. If there is much of this involved in the divorce, assistance from an attorney is likely a good idea.

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    Q: My husband moved out two years ago and I stayed in our home, paying the mortgage and taxes and such. Will my estranged husband be entitled to the increased value of our home if we divorce?

    A: The states differ on this. In some states the court will determine a "de facto" date of termination of the marriage. It might be the day he moved out. If so, acquisitions after that date can often be characterized as separate, and therefore not divisible. However, he retains any interest he had prior to moving out, and the appreciation attributable to that interest is still an interest of his.

    In other states, the date of the divorce is the important date. Common law states still do an equitable distribution, however, so the court might still craft a division which considers that you paid the mortgage and taxes during that period.

    State law on separation might also have a role to play here. In some states a formal, legal separation can be filed, and it can change the rules governing the acquisition of property. In other states, separation is just informal, and might be the subject of argument concerning the "de facto" date of divorce.

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    Q: Am I responsible for my ex-husband's misrepresentations on our joint tax return?

    A: You may qualify for the "innocent spouse" election under federal tax law. This law provides that if you file a joint return but then divorce, legally separate or live apart from your spouse for one year, you can elect separate liability if you can prove that the liability is attributable to your spouse. Another provision in the law allows "equitable relief" if your spouse or former spouse failed to pay taxes in the past.

    If your divorce decree states that your ex-husband is liable for the tax liability and he doesn't pay it, you may be able to file a motion with the divorce court as well.

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    Q: Am I entitled to any part of my husband's medical practice?

    A: Some states hold that a professional license acquired during the marriage is a marital asset. Other states hold to the contrary. You must check state law. Valuing the license is a very difficult thing, and you should consult an attorney. And even if the license isn't a marital asset, it is a good indicator of future ability to earn, and can be important for determining a spousal support award.

    The medical practice, on the other hand, may be a marital asset as a business interest. Depending on when it was started and how it has done during the marriage, you might have a claim to a part of the asset. This is also a very complex thing to value, and an attorney should be consulted.

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    Q: Can I appeal a property division court ruling?

    A: All states have a "statute of limitations," a period of time after the finalization of the divorce in which a party may file a notice of appeal. The time limit can often be fairly short, like a month. After that, any chance of opening the judgment depends on the facts of the judgment, and state law. Some states have an open-ended rule that allows a party to seek relief from an unjust order for many years. However, "unjust" is very different than simply not liking the judgment.

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    Q: Can I get rid of my financial obligations from my divorce in bankruptcy?

    A: Alimony and child support can't be "discharged" (forgiven) in bankruptcy. Furthermore, the United States Bankruptcy Code states that debts that are in the nature of support also can't be discharged. In many states, courts will look to the intent of the spouses in deciding whether taking responsibility for marital debt is "in the nature of support."

    The language of your settlement agreement and your intent at the time you entered into the agreement will be deciding factors as to whether you're able to discharge that debt. If it can be proven that you intended payment of the debt to help support your ex-wife and children, you'll most likely still be responsible for paying the debt despite going through bankruptcy.

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    Q: Will divorce automatically change the designated beneficiary of a life insurance policy?

    A: It depends on state law. In some states, a divorce revokes all beneficiary designations where the ex-spouse was the beneficiary. If that's the case, the interest will pass to the secondary beneficiary, or to the estate of the decedent.

    In other states, a divorce revokes the designation unless a certain period of time passes. In those states, it's presumed that the person intends to make the change, but hasn't. After the time period passes, it's presumed that the designation represents the intent of the decedent.

    Another theory protects the decedent and a proposed beneficiary if the decedent did everything within his power to change the beneficiary, but for some reason the change doesn't occur. If the cause was beyond the control of the decedent, the courts may make the proposed beneficiary the actual beneficiary, or might at least revoke the designation which is currently on the account.

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