The Michigan Court of Appeals has recently changed the rules regarding commingling of assets. Lawyers must advise their clients accordingly and clients should seek competent legal advice before commingling assets with his/her spouse.
When dividing property in a divorce, a primary consideration is whether the property is ‘marital’ or ‘separate’. Generally, property acquired during the course of the marriage is ‘marital’ and 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 a 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 has become marital once commingled into the marital home. More specifically, because the separate property is no longer traceable to the separate source (because of the refinancing, cash out, etc.) it has become marital and is subject to division in divorce.
Until recently, 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 changed the rule. On July 13, 2010, the Michigan Court of Appeals decided the case of Cunningham v. Cunningham. The Court 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.
Prior to commingling a separate 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.
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By: Daniel Findling
The Divorce Guy, Michigan Divorce Attorneys and Specialists