Why Is a Spouse’s Separate Property Sometimes Treated as Part of the Marital Estate?
Minnesota is an equitable distribution state, which means the court decides whether assets are non-marital property or part of the marital estate before dividing the estate in a manner the court determines is fair and just. Non-marital property consists of assets you owned prior to marriage and certain items you acquired during the marriage, such as gifts and inheritances that were clearly designated for you alone. However, there are many instances where an asset a spouse considers non-marital property turns out, in the judgment of the court, to be part of the marital estate. The reason is a process called “commingling.”
Most people understand how commingling happens with regards to money. Husband and wife have joint saving and checking accounts with direct deposit of their paychecks. When they spend money, there is no thought to whose money is being spent. Naturally, the assets in those accounts are considered marital property.
But how can a personal asset be commingled? Take, for example, your car. You purchased it prior to marriage, but hadn’t quite paid it off. Since you got married, the remainder of the loan and repairs were paid for from your joint account. That gives your spouse an equity interest in your car. Now, with regards to a 15-year-old car, you might be willing to let your ex-spouse have the whole thing. But apply the same principle to real estate.
Say that during your marriage you inherited your father’s lake house. However, the house was in disrepair, so you put money into it. Some taxes were owed on it, and you paid them, as well as annual property taxes from that time on. Then you allowed your spouse to use the house to entertain clients which led to the closing of some business deals. Has the house been commingled? Well, your joint account paid for its maintenance and your spouse freely used it and derived a benefit from it. A court could find that your spouse has equity in what you thought was non-marital property.
The danger presented by commingling assets is a major reason why couples sign prenuptial agreements before they get married and postnuptial agreements if their financial situation changes dramatically during their marriage. If you don’t have a marital agreement to protect you from losses due to commingling, you may face very contentious litigation over your property.
If you’d like further information on protecting your separate property during a divorce, schedule a free consultation with our family law attorneys at Appelhof, Pfeifer & Hart, P.A.