Assets in a divorce
All assets should be disclosed
The construction and valuation of the marital estate should encompass the listing of all assets and all liabilities.
This totality approach avoids claims of improper exclusions from the marital estate. Exclusions from marital estates by oversight or intent can carry significant consequences. For example, some jurisdictions have provisions that provide for the surrender, in total, of concealed assets to the other party if their existence is discovered.
In addition, a marital estate summary listing all assets and liabilities of the parties can be used to assess the parties’ expected financial condition after the divorce. One of the factors that is used in the determination of alimony or maintenance is a person’s total financial condition. A marital estate summary that provides for a determination of a person’s net worth could assist in the determination of whether or not alimony or maintenance is indicated in a particular case.
Some assets are not part of the marital estate
However, simply because an asset or liability exists and is disclosed, does not mean that it should be included in the marital estate to be valued and divided.
For example, assume that a wife received a ring on her twenty-first birthday from her mother. Assume also that the ring is a family heirloom, and the wife intends to give it to her daughter on her twenty-first birthday. The husband and wife married when the wife was twenty-four years of age, and during the marriage the husband had nothing to do with the ring. The preponderance of evidence in this example indicates that the ring is not marital property. That is, it is the separate property of the wife and should not be shared with the husband. The ring was received before the marriage, it was gifted to the wife exclusively, and the property was kept separate from the assets of the husband or the couple combined.
The status of an asset may change by disposition
Whether or not an asset is part of the marital estate or not is a function of timing, source, and disposition. Assets that are amassed prior to the marriage can carry an assumption that they are pre-marital. However, this does not automatically mean that they will be held to be pre-marital.
For example, assume that a wife brings a $10,000 savings account into a marriage. Technically, this is pre-marital property, and that status is an argument for exclusion from the marital estate. However, the savings account is used as a part of the down payment on the house the couple purchases together. From an economist’s point of view, the $10,000 has been commingled, and there is no way to separate one dollar from another in the equity of the house. Consequently, the $10,000 is part of the marital estate and is subject to division.
The timing of the asset refers to when it came into existence: prior to the marriage. The source of the asset refers to where the asset came from: the wife. And finally, the disposition refers to what happened to the asset during the marriage: expended to purchase a joint asset. The first two functions indicated that the asset could be excluded from the marital estate. However, the last function changed the nature of the funds and made them part of the marital estate.
The timing of the acquisition of an asset may determine its status
Assume that shortly after her marriage the wife opened an individual retirement account. The account was in her name only and her husband never had anything to do with the account. At the time of the divorce, the account has a value of $10,000.
From an economist’s point of view, the asset is marital and subject to division. This is because of the timing of the creation of the asset: during the marriage. Assets earned during the marriage are produced by the economic unit of the couple. Assets earned by the couple are divisible no matter whose name they happen to be in or whether or not they have been kept separate.
The source of an asset may determine its status
Continuing with the same example, assume that during the marriage the $10,000 was given to the wife by her aunt. The wife purchased a savings bond with the amount and never commingled the asset with the assets of the marriage.
The timing indicates that the asset is marital in that it was received during the marriage. However, the source of the asset is not the marriage, it is the aunt. Consequently, the asset is not due to the efforts of the couple, which makes it excludable from the marital estate. And finally, the funds were kept separate by the wife from the assets of the marriage. The evidence suggests that the funds could be kept separate from the marital estate and not divided.
Gifts and inheritances
Gifts and inheritances (including trust proceeds) can all be viewed similarly in the application of the functions of timing, source, and disposition. In the case of gifts or inheritances, timing does not play a crucial role in determining the status of the asset. Whether the asset was received before the marriage or during the marriage or after the date of separation is less important than the source and disposition. The source of the funds in these cases is not due to the efforts of the economic unit of the couple. A transfer to one of the parties would tend to indicate that the assets are not marital.
However, if the source of the assets is a gift or inheritance made to both the husband and wife, this type of transfer will indicate that the asset is marital.
Disposition can also provide an indication of the nature of the asset. A gift or inheritance that is put into an account solely in the recipient’s name may indicate that the recipient intended to keep the asset separate from the marital estate. If, however, and by example, the recipient purchased a recreational vehicle and placed the title to the vehicle in both the husband’s and wife’s names, the intent may have been to treat the asset as marital.
The parties may agree about the status
The logical disposition of the assets by application of the functions of timing, source and disposition do not necessarily have to be applied by the couple. Outside of a court of law, whether or not an asset is part of the marital estate or not could be a matter of negotiation.
For example, with the previous example of the wife contributing $10,000 to the down payment of a house, if the husband and wife agreed, the wife could be given credit for the $10,000 she contributed toward ownership of the house. That is, if the house were going to be sold, she would receive $10,000 more of the net proceeds than the husband.
Assets accumulated after separation raise additional issues
Determining whether or not assets accumulated from the date of the separation to the date of divorce (post-separation property) are part of the marital estate can be particularly difficult to assess.
One of the reasons for this is that there can be an inherent conflict between economic theory and legal regulation associated with these assets. For example, assume that a husband and wife have been separated for a year. During that period of time the husband has continued his regular contributions to his IRA savings program and accumulated $5,000 during the separation. A theory that can be applied to this situation is that the economic entity of the couple dissolved as of the date of separation. Under this theory the couple did not earn the additions to the IRA; therefore, the amounts are separate and should not be divided. However, a state statute may mandate that marital estates be valued as of the date of divorce. Under this regulation, the IRA contributions are part of the marital estate and divisible.