Put your instincts to the test: in a contested divorce case, which of the following are typically considered separate property (and therefore not subject to division in divorce), and which are typically considered part of the marital estate (and therefore will be equitably divided)?

• Each spouse’s individual earnings during the marriage? What about earnings before the marriage?

• Bank accounts, cars, or other property titled in the name of only one spouse?

• An inheritance received during the marriage? What about an inheritance received before the marriage? What about an inheritance that was parked in a joint bank account for some time?

• Personal injury lawsuit damages for pain and suffering? What about damages for lost wages?

This is the first question a court must answer when divorcing spouses can’t agree on the division of property: what is part of the “marital estate” (and therefore must be equitably divided between the parties) and what is separate from the marital estate (and therefore will be awarded to the party having separate ownership).^[1] In general, “marital property” consists of anything that was acquired or earned during the marriage and “separate property” is (usually) property that was earned or obtained before the marriage.^[2]

While that seems simple enough, these legal definitions of marital and separate property tend to diverge from what many people might expect. And the party seeking to maintain an asset as separate has the burden of proof.

In this three-part advisory, we’ll first overview some key categories of marital property. Then, in a later post, we’ll look at some noteworthy types of separate property. After that, we’ll discuss how one spouse might “invade” the separate property of another.

What Is Not Separate Property?

Below are some categories of assets that are commonly yet mistakenly believed to be separate property:

• Income earned during the marriage. Regardless of whether one or both spouses work outside of the home, each person’s income during the marriage is considered marital property and will be subject to equitable division by the court.^[3]  

• Property purchased solely with one spouse’s income. Just because one spouse saved up their personal paycheck to buy something (for example, a car or jewelry) does not mean that asset becomes separate property. Since a spouse’s earned income is marital property, anything bought with that income is also considered marital.

• Active appreciation of premarital property. When an asset appreciates during marriage because of the parties’ efforts, that “active” appreciation may be divisible as marital property.[4] For example, if one spouse runs the household and thereby allows the other spouse to use their labor to grow the value of a business, then the appreciation of the business was not merely passive; it was the result of the parties’ labor during the marriage, and should count as marital income.^[5]

• Property titled in one spouse’s name. Simply put, the way that property is titled does not decide the question of whether the property is marital or separate.^[6] The fact that a bank account is held in the name of one spouse does not mean that bank account is the separate property of that spouse. The fact that a car is titled in one person’s name does not mean the car is excluded from the marital estate. And a credit card titled in one spouse’s name used during the marriage is not separate and will be debt divided at conclusion of the divorce.

• Retirement accrued during the marriage. 401k’s and IRA’s can only be titled in one person’s name. Many times, a party has earned some retirement benefits with their employer and then continues to contribute to their retirement plan after marriage. In many cases, what the spouse had in their retirement account at the time of marriage is deemed premarital and the accumulation and increase in the account is deemed marital.

Note, however, that while the titling of assets alone cannot definitively establish whether property is separate or marital, a combination of that and other factors can provide evidence of the parties’ intent to treat property as separate. For example, suppose a person received a $30,000 inheritance during a marriage and put that money in a separate bank account in her own name, and no other money went into the bank account at any later time. Then a few months later, the person uses some of the $30,000 to buy a car, titled only in her name. In such a case, the fact that the car and the bank account were in the individual name of one spouse would likely provide some evidence that it was the parties’ intention to treat the car as the person’s separate property. But if there was other evidence to demonstrate a different intention (such as the other spouse paying for insurance on the car or paying for repairs), then the property may be viewed as marital, despite the separate titling of the bank account and car itself.

Next week, we’ll highlight some circumstances in which property may retain its separate status.

^{[1] Woodington v. Shokoohi, 288 Mich. App. 352, 358, 792 N.W.2d 63, 70 (2010). 
[2] Cunningham v. Cunningham, 289 Mich. App. 195, 201, 795 N.W.2d 826, 830 (2010) (“Generally, marital property is that which is acquired or earned during the marriage, whereas separate property is that which is obtained or earned before the marriage.”); MCL 552.19.
[3] Byington v Byington, 224 Mich App 103, 568 NW2d 141 (1997).
[4] See Reeves v Reeves, 226 Mich App 490, 575 NW2d 1 (1997).
[5] See e.g. Hanaway v Hanaway, 208 Mich App 278, 527 NW2d 792 (1995) (increase in value of family business was result of active appreciation, and therefore was marital property subject to division).
[6] See Cunningham, 289 Mich. App. at 202.}