Commingling assets and divorce in Michigan: When dividing property in a divorce, a primary consideration is whether the property is ‘marital’ or ‘separate’. As a general rule, property acquired by reason of the marriage or “during the course of the marriage” is marital and is likely subject to division in the event of divorce. Conversely, property acquired before (or after) marriage is separate property and not subject to division in the event of divorce.
However, there are a number of exceptions to the general rule set forth above. One notable exception is the commingling of separate assets. The exception typically arises in this situation. One spouse has separate assets (e.g. Savings from before marriage) and invests the money in the marital home, the home is then refinanced a few times with cash out and the parties continue to pay on the new mortgage. In this situation, courts have ruled that the separate investment of a party may become marital once commingled into the marital home.
Specifically, because the separate property is no longer traceable to the separate source, for example, because of the refinancing, cash out, etc., it cannot be readily separated, has become marital and is subject to division in divorce.
The prevailing view regarding commingling of assets has been that if money is traceable to the separate source, it would remain separate property and not subject to division in the event of divorce. However, the Michigan Court of Appeals has recently crafted an exception to the prevailing rule. On July 13, 2010, the Michigan Court of Appeals decided the case of Cunningham v. Cunningham.
In the Cunningham case, the Court of Appeals ruled that an asset from before marriage which was invested in the marital home during the marriage becomes marital property when it was invested in the marital home even though the down payment was traceable to one party.
This exception to the prevailing view appears limited to certain factual situations, therefore, prior to commingling any asset, careful consideration must be given to how that asset will be treated in the event of divorce.
What you thought was yours might unintentionally belong to both you and your spouse.
If you are not married, consider a pre-nuptial agreement. If you are already married, consider a private agreement or post-nuptial agreement.
As always, feel free to call me to discuss any concern regarding your family law matters.
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By: Daniel Findling
The Divorce Guy, Michigan Divorce Attorneys and Specialists
3 thoughts on “Michigan divorce law update: The dangers of commingling property (assets).”
I had an inheritence that I invested into a marital home purchase. The home has not appreciated. Is the inheritance lost or is there a possibility that I can recover the inheritance in divorce from the home?
While it is not probable to have your spouse contribute to the inheritance from a lost equity perspective, if equity remains in the home and the inherited funds are readily traceable, you have a very strong argument to claim the investment as your separate property.