For divorce law, the 50 states are divided between “community property” states and “equitable distribution” states. In community property states, all property owned during marriage – not just property acquired during marriage – is split down the middle and divided accordingly. For example, if a man owning a huge Malibu ranch married and quickly divorced, his wife would be awarded half the ranch, or half its value. Hollywood makes movies about this stuff.
Community property states include Texas, New Mexico, California, Nevada and others. Community property states for the most part comprise territories that were once part of Spain, and their law reflects Spain’s law of division of marital assets. Puerto Rico is a community property jurisdiction.
Maine, and other states which aren’t community property states, use “equitable distribution of property”, in which the judge is supposed to divide assets and earnings accumulated during marriage equitably (fairly), but not necessarily equally.
In any divorce with assets worth a sneeze, whether the divorce is in a community property state or an equitable property state can make a big difference. Remember the actress Kirstie Alley, from Cheers? She lived in California but had a place on Islesboro, in Penobscot Bay. Divorcing, she fought hard to get a Maine court to decide the case. Kirstie had been married from 1983 to 1997, big years for her. In a California divorce, she’d whack her entire estate in half and write the guy a gigantic check. In Maine she could argue that the wealth came solely from her talent and hard work, that her husband hadn’t done much but tag along, and that he ought to get just a small cut. Although she took it all the way up, Kirstie’s divorce was heard in California, and it cost her.
But in one important respect community property and equitable division states are identical. In all states a divorce court will award a spouse’s “separate property” to that spouse, and that property will not be subject to any sort of division.
Let’s say that on her wedding day a woman’s father gives her a check for $100,000, telling her the money is “for if you ever need it.” Because the savvy lady keeps the money in an account in her name alone, no signing authority or anything in the husband, she’ll keep every penny if the marriage fails.
Separate property doesn’t have to be money. If Dad leaves a guy 50 acres and a camp on Moosehead Lake, and the cynical fellow never puts his wife on the deed, he’ll keep the camp in the divorce.
Separate property can be an inheritance or gift received before or during marriage. A personal injury settlement or award is the injured person’s separate property, except to the extent that the money represents lost income.
There is solid Maine case law for the proposition that if the money is even momentarily in a joint account, the money’s separate character is forever lost. If a man receives a large cash gift and places the money in his and his wife’s joint checking account overnight while waiting to open a new account in his name alone, the cash has probably become a marital asset. If you are ever so fortunate as to inherit or be given a bundle, open a new account and leave the funds there, untouched for a while.
There are other ways for property to lose its separate character and become marital. To cite a too common example, if a woman inherits real estate and later deeds the land to herself and her husband in joint tenancy, a very common form of do-it-yourself estate planning, the property is no longer the woman’s separate property.
Suppose a married couple wishes to borrow on their jointly-owned home. The loan application says the wife separately owns some real estate. The bank asks the woman to add her property to the mortgage, maybe in exchange for a better interest rate. Is it all marital property now? I am certain there’s a strong argument there.
Let’s say one spouse comes into the marriage with real estate, and there is a mortgage on the real estate. The deed never changes, but the couple uses income to pay the mortgage. The real estate may have changed from separate property into a marital asset. This is an example of “comingling”, or mixing up one person’s assets with another person’s. Comingling also occurs when a couple deposits marital income into an account which had previously held only one spouse’s separate property. Commingling is often fatal to an argument that property is separate.
One thing you can safely do with separate property is convert it into another asset form. Many a spouse has inherited cash, and then used the cash to buy a camp for the whole family to enjoy, but carefully kept the deed in her name alone.
I need to make one thing clear. In Maine and other states using the broad principles of equitable division of property, the court will take into consideration each spouse’s separate property in determining how to equitably distribute marital property during a divorce. In other words, you keep the Moosehead camp but you get hit hard otherwise, in alimony or in the division of marital property. That said, it may still be critical that you preserved the status of your separate property. For example, suppose the separately-owned Moosehead camp is worth $1 million, and the marital assets (home equity and savings, minus debt) are valued at $100,000.00. The judge can divide the marital assets in any equitable manner – even giving them all to one spouse – but the camp won’t be touched.
There are two takeaways here. First, if you are marrying and have assets, you and your beloved should each spend an hour with separate divorce lawyers ahead of the big day. Second, treat your separate property with great care. You don’t what to find out you’ve changed it into marital property by mistake.
Stay out of trouble.