Cincinnati Family Law & Divorce Blog: Is it Mine or is it Ours: Tracing Separate Property Interests
A major consideration when contemplating a divorce is how assets and debts will be divided between the spouses. In Ohio, any asset or debt accumulated during the course of a marriage is presumed marital and subject to division by the court unless it can be shown that the asset or debt is separate or non-marital. There are three main types of separate property: inheritance, gifts, and property owned prior to marriage. These categories of property are not subject to division by the Court. To the extent that any asset or debt is solely the separate property of one spouse, then that spouse will retain the asset or debt in the divorce free from any claims the other spouse.
Complications arise when a spouse’s separate property is commingled with marital property. For example, Wife receives an inheritance when her father passes away. This money, if deposited in a separate account with no other funds, will be considered separate property and awarded to Wife in the divorce. However, if the money is deposited in the parties’ primary checking account where income is also deposited, it is hard, if not impossible to distinguish it from marital funds. The funds may no longer be traceable to a separate asset which is a key factor in being able to prove separate property claims.
Let’s assume that instead of depositing the inheritance in the joint checking account, Wife purchases a vehicle with those funds. Now the money can be clearly traced to the vehicle and the vehicle is considered Wife’s separate property as it was purchased solely with the separate inheritance of Wife.
This concept of traceability also comes up frequently in real estate. It is common for one spouse to use separate funds as a down payment, either by using proceeds from the sale of a residence owned prior to marriage, premarital savings or a gift from family. Many attorneys use a formula to determine the percentage of current home equity that is attributable to the separate property of one spouse versus the equity that is attributable to the marriage. Presumably, if the value of the house increased simply as a result of market forces, the separate property claim has also increased. It was a good investment. The converse is also true, if the house has declined in value so has the separate property claim.
If improvements have been made to the real estate, the analysis becomes even more complicated. A $50,000 home improvement does not necessarily mean that the home has increased in value by $50,000 so the full amount put into the house may not be recoverable as separate property.
One common misconception is that an asset or debt titled in only one spouse’s name is his/her separate property. While the title of certain assets or debts carries legal implications it is not significant in the context of determining separate or marital property subject to division in a divorce proceeding. For example, a retirement account in Wife’s individual name is marital to the extent that it was earned during the marriage even if Husband’s name is not on it.
It is important to discuss all of these concepts with your attorney to fully understand if any assertions can be made for separate property in your negotiation. If a party is making a separate property claim the burden is on him/her to provide proof or evidence of the claim. You will need to gather any documentation that shows the funds that were inherited, gifted, or owned prior to marriage and how the funds have been used.