When love and respect run out and a divorce is pending, it is important to understand what is separate property because under most circumstances separate property is not divided in a divorce case.
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 edition)
Marital property is divided in a divorce, and separate is not. As a general rule, marital property is property that came to either party “by reason of the marriage” or “during the course of the marriage” and separate is property acquired before or after marriage. However, there are exceptions to these general rules.
The statutory basis for dividing marital property can be found in MCL 552.19, which provides:
MCL 552.19 Restoration of real and personal estate to parties.
Upon the annulment of a marriage, a divorce from the bonds of matrimony or a judgment of separate maintenance, the court may make a further judgment for restoring to either party the whole, or such parts as it shall deem just and reasonable, of the real and personal estate that shall have come to either party by reason of the marriage, or for awarding to either party the value thereof, to be paid by either party in money.MCL 552.19 – emphasis added
By default, separate property is property that is not marital.
In order to understand what is separate property, you have to know what it is not and the most cited case on point is the case of Byington v. Byington, 224 Mich. App. 103 (1997). A recent Westlaw search on Byington provides 353 citing references.
Byington instructs us that assets earned by spouse during marriage are part of marital estate even if the assets are received after the entry of the Judgment of Divorce whereas, separate property is not.
Sometimes deciding if property is marital or separate can be tricky. Take the following examples:
Question: Husband inherited $100,000 from his father during the parties 30 year marriage. Is the property marital or separate?
Answer: Under most circumstances, gifted or inherited property acquired during the marriage is separate property because the property was gifted (inherited) and not “earned by a spouse during marriage”.
Question: Husband deposits the $100,000 he inherited from his father into a joint bank account and the parties remodel the marital home with the money. Is the husband entitled to the $100,000 back as his separate property?
Answer: When property is no longer “traceable to its separate source” (commingled) it can become marital property. However, if the property is traceable, it will likely remain separate property.
There are two statutory exceptions when separate property can become marital. also instances when separate property can become marital See MCL 552.23 and 552.401). The first exception applies when the estate has only separate property. In this instance, a court can invade the separate property of one spouse and give it to the other. (MCL 552.23) The second exception applies when a spouse contributed to the property before marriage. (MCL 552.401).
Identifying separate property is important in a Michigan divorce because under most circumstances, separate property is not divided in a divorce. Therefore, care must be taken to maximize your side of the marital balance sheet.
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By: Daniel Findling
Divorce, property and a real estate commission