August 1, 2013

Property Division

Property division in a Michigan divorce includes both assets, (such as real estate, personal belongings, automobiles, stocks, bank accounts, pensions), as well as debts.  We invite you to explore or knowledge base.

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Property division in Michigan explained – The Basics

When a couple dissolves their relationship, property division can be one of the most important and complicated issues. Property division includes both assets, (such as real estate, personal belongings, automobiles, stocks, bank accounts, pensions), as well as debts.

In every Michigan divorce case property must be divided. As  a general rule, court’s are only concerned with property acquired during the course of the marriage (See: Byington v. Byington).  While there is no requirement that property should be divided equally (See: Sparks v. Sparks), the division of property should at a minimum be fair. Debts should also be related to a marital purpose.

In addition to the general rules of property division, a skilled divorce lawyer will also take into consideration the tax consequences and present/future value of an asset or liability to benefit his/her client.  For example, it is not appropriate to exchange a tax deferred asset, such as an IRA or a 401(K) with a cash asset like equity in a home, without understanding and “tax-effecting” the assets. In addition, business valuation methodologies can play an important role in apportioning property.

Property division in Michigan explained – The Details

From property classification to property division we have got you covered. In this section, we discuss the details of Property division in Michigan. If you cannot find answers to your questions here, we encourage you to call, email or set up a free confidential consultation to discuss your situation.

 

Marital and separate property

Courts distinguish between marital property and separate property.

  • Separate property is typically property acquired before the parties married.
  • Marital property is typically property acquired during the marriage.

The seminal property case.

Simply put, marital property is divided fairly in light of all of the circumstances.  The seminal case on point is Byington v. Byington, 224 Mich App. 103 (1997).

“To reach an equitable division of marital property, a trial court should consider the duration of the marriage, the contribution of each party to the marital estate, each party’s station in life, each party’s earning ability, each party’s age, health and needs, fault or past misconduct, and any other equitable circumstance. The determination of relevant factors will vary with the circumstances of each case, and no one factor should be given undue weight. The trial court must make specific findings regarding the factors it determines to be relevant.”

As a general rule marital property consists of assets earned by a spouse during the marriage, whether they are received during the existence of the marriage or after the judgment of divorce, are properly considered part of the marital estate.

Typically, separate property is identified as:

“[p]roperty that a spouse owned before marriage or acquired during marriage by inheritance or by gift from a third party, and in some states property acquired during marriage but after the spouses have entered into a separation agreement and have begun living apart or after one spouse has commenced a divorce action.”

Black’s Law Dictionary (10th ed).

Michigan has adopted a doctrine called the doctrine of non-invasion of separate property. As a general rule, separate property (before marriage) is awarded to the party who owned the property prior to marriage, unless the other party substantially contributed to its acquisition or appreciation or the estate is otherwise insufficient. (For example, if you purchased your home before marriage, the increase in value of the property during the marriage will often be considered marital.)

Defining specific property as marital, separate or both can have a significant impact on a property award.  Michigan divorce law provides many exceptions to these general rules.

Exceptions to the general rules:

Lawyers love exceptions, and Michigan divorce property law has plenty of them. For example, property that is acquired during cohabitation is generally not considered marital property (Reeves vs.  Reeves).  However, pre-marital contributions towards property acquired before marriage that are also “readily traceable to a separate source” may be considered marital property under another exception to the doctrine of non-invasion of separate property.

So which is correct, the answer is both.  Property acquired during cohabitation may become marital property if the property is readily traceable to a separate source.  Therefore, if you put a down payment on your home before you married, you generally will get it back unless it was commingled and no longer “readily traceable to a separate source”. This occurs in instances where the parties have refinanced a home, or sold a home to purchase another.

On the other hand, if you contributed to a home before marriage that is in the name of your spouse, the home may still be considered marital property.

Another common exception deals with when a marriage ends for property division purposes.  The majority view is that property division is from the date of marriage to the date of divorce (Byington vs. Byington). However, some court’s utilize when the parties separate or manifest an intent to live separate lives (Wilson vs. Wilson)

Separate property can also become marital property, if the estate is insufficient for the suitable maintenance and support of the other party.

Other exceptions to the general rules set forth above include active vs. passive appreciation, gifted property, inherited property, and commingled property.

  •  Passive appreciation is generally considered separate property under Michigan divorce law.  (e.g. a CD)
  •  Active appreciation is generally considered marital property under Michigan divorce law.  (e.g. a managed brokerage account or 401(k) where trades were made during the marriage.
  • Gifted and inherited property is generally considered separate property under Michigan divorce law.
  • Commingled separate property can become marital if the property is no longer “readily traceable to a separate source”.

Skilled lawyers apply the exception’s to these general rules.

property division2

How is property divided?

Michigan divorce law promotes an equitable distribution of property. There is no requirement that property awarded to each party be equal, but at a minimum should be fair in light of all of the circumstances.  The court does not need to divide the property equally, but it must divide property fairly considering the parties contributions, faults and needs.

The leading Michigan divorce case on how property divided is the case are  Sparks v. Sparks and McDougal v. McDougal In the Sparks case, the Supreme Court determined what relevant factors a trial court should consider when dividing property.  The relevant factors are:

  1. The length of the the marriage;
  2. The contributions of the parties to the marital estate;
  3. The age of the parties;
  4. The health of the parties;
  5. The life status of the parties;
  6. The necessities and circumstances of the parties;
  7. The earning ability of the parties;
  8. The past relations and conduct of the parties (fault); and
  9. General principles of equity.

After listing the specific factors, the McDougal court provided additional discretion by the trial court to determine how property is divided in a Michigan divorce in providing that:

“[t]here may even be additional factors that are relevant to a particular case. For example, the court may choose to consider the interruption of the personal career or education of either party. The determination of relevant factors will vary depending on the facts and circumstances of the case.”

Our skilled Michigan divorce lawyers use various techniques to help maximize our clients share of the marital estate such as utilizing the most favorable valuation methodology and tax effecting assets.  We have access to select experts in valuing assets and taxes.

We want to be here for you.  If you have a question about how Michigan divorce law would apply to your situation, call, email or set up a confidential consultation with your Michigan divorce specialists.  We are ready to help.

The Law – Cases and statutes on property division in Michigan

MCR 3.211(A).  Requires that a Judgment of divorce must address these property interests:

  • MCL 552.19: Provides the statutory authority for a court to divide property in divorce .

  • MCL 552.23(1): Provides authority for a court to invade separate property.

  • MCL 552.101: Addresses life insurance, endowments and annuities.

  • MCL 552.103: Provides authority to convert jointly owned real property (entireties or joint tenancy) to individual ownership in divorce.

  • A division of the real and personal property brought to and acquired during the marriage as well a the parties debts.  MCL 552.19, .23, .101, .103, .401; MCR 3.211(B)(3)l Yeo v Yeo, 214 Mich App 598.

  • A statement confirming that the divorce judgment terminates each spouse’s interest as a beneficiary in life insurance on the other spouse’s life or providing otherwise.  MCL 552.101(2)-(3); MCR 3.211(B)(1)

  • A determination of the rights of both spouses in pension, annuity, or retirement benenefits.  MCL 552.101(4)l MCR 3.211(B)(2)

  • MCL 552.22:  The court may require the disclosure of property interests under oath.

Marital property

Leverich v Leverich340 Mich 133 (1957):  Marital property is property accumulated through the joint efforts of the parties during their marriage.

Byington v Byington: Docket 181936Generally marital property includes any property accumulated up to the date of the judgment of divorce.

Wilson v Wilson, Marital property (Personal injury proceeds) includes property acquired until the parties manifested an intent to lead separate lives.

Bone v Bone148 Mich App 834 (1986):  A spouse’s separate assets or appreciation in their value may be included in the marital estate.

Separate property

MCL 552.401:  Statutory exception to the doctrine of non-invasion of separate property.  (1)  Has the claimant spouse contributed to the “acquisition, improvement or accumulation of the property.

MCL 552.23:  MCL 552.401:  Statutory exception to the doctrine of non-invasion of separate property. (2) The award to the claimant spouse from the marital assets is “insufficient for the suitable support and maintenance of the claimant and any children in his or her care.

Skelly v. Skelly, 286 Mich App 578 (2009), Employment retention bonuses received during the marriage but not earned until after divorce are separate property.

Reeves v. Reeves, Assets accumulated during cohabitation before marriage are separate property.

Marital vs. Separate Property:

Anderson v. Anderson, 2011 WL 3104941 (2011) – Unpublished:  When addressing the classification of an asset as marital or separate property, the intent of the parties, and how the parties treated the assets, may be important points to be considered by the court.

Golowic v. Golowic, 2011 WL 4953485 (2011) – Unpublished:  The mere fact that property may be held jointly or individually does not necessarily make the property marital or separate.

Inherited property

Dart v Dart, 460 Mich 573 (1999):  Under most circumstances, property received by a married party as an inheritance but kept separate from marital property is considered separate property and not subject to distribution.  Court’s still have discretion to award a portion to the non-owner spouse upon showing of contribution or need.

Wedding gifts

Darwish v. Darwish, 100 Mich App. 758 (1980), look at the intent of the donor and the personal nature of the gift to determine if the gift is marital or separate.

Wedding ring

Meyer v. Mitnick, 244 Mich.App. 697 (2001 WL 171453, Ct. App., Mich., 2001):  Wedding ring is a conditional gift fulfilled by marriage.  Therefore, if the parties do not marry the ring should be returned.

Fraud

Sands v Sands, 192 Mich App 698 (1992)  Where a spouse attempts to conceal assets are persistent and repeatably in contempt of court, it is abuse of discretion for a trial court not to take punitive action.

Division of property:

Sparks v Sparks, 440 Mich 141 (1992)  The court must use its discretion to divide property equitably under all the circumstances, while there is no rigid formula the court must consider the duration of the marriage, the contribution of the parties, the age of the parties, the lifestyle of the parties, the necessities and circumstances of the parties, the paste relations and conduct of the parties.

McDougal v. McDougal. (see above)

Reeves v Reeves226 Mich App 490 (1997) Active appreciation of separate property is typically considered marital property;  passive appreciation remains separate property.  An increase in value of an asset during the marriage can be a marital asset.

Pensions:

Magee v Magee, 218 Mich App 158 (1996) Pensions are considered part of the marital estate and should be divided as part of the property settlement.

Stock options:

Everett v Everett195 Mich App 50 (1992)  Vested stock options are a marital asset and may be divided as part of the property settlement.  Non-vested options should be valued differently.

Personal injury proceeds:

Wilson v. Wilson, Marital property (Personal injury proceeds) includes property acquired until the parties manifested an intent to lead separate lives.

Postill v. Postill116 Mich  App 578 (1982) A tort lawsuit and any damages is property and therefore is subject to division in a divorce proceeding.

Bywater v. Bywater 128, Mich App 396 (1983) A personal injury award for pain and suffering is personal to the injured party and should be taken into account in the same manner as separate property.

Gocha v. Gocha, 2010 WL 4259263 (2010) – Unpublished:  Personal injury proceeds for pain and suffering are not marital property.

Commingling of assets:

Golowic v. Golowic, 2011 WL 4953485 (2011) – Unpublished:  In order to find commingling, there must be some marital property with which the separate property was commingled.

Jastifer v. Jastifer, 2010 WL 2757020 (2010) – Unpublished:  Documentary proof is not a mandatory component for the defense of tracing.

Kracko v. Kracko, 2010 WL 571834 (2010) – Unpublished:  Using marital funds to maintain a party’s pre-marital asset is an act of commingling.  See also:  Martin v. Martin, 2012 WL 1448313 (2012) – Unpublished.

Appreciation:

Reeves v Reeves226 Mich App 490 (1997) Active appreciation of separate property is typically considered marital property;  passive appreciation remains separate property.  An increase in value of an asset during the marriage can be a marital asset.

McNamara v. Horner249 Mich App 177 (2002):  Appreciation of a marital asset during the marriage is subject to division as part of the marital estate unless the appreciation is wholly passive.

Henderson v. Henderson, 2011 (WL) 2271314 (2011) – Unpublished:  If the owner of property expends his/her effort that cause the separate property to appreciate in value, that appreciation will be deemed marital property irrespective of the efforts of the non-owning spouse.

Anderson v. Anderson, When the appreciation of a separate asset is wholly passive, the appreciation must be classified as separate property.

Maher v. Maher, 2010 WL 1565468 (2010) – Unpublished:  Whether property is titled as joint or individual property may not cause the appreciation to be classified as marital property.

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