In New York marital property is subject to equitable distribution in a divorce action. So it is important to know exactly what marital property is. It also is important to understand this concept before one gets knee deep into a divorce action.
Marital property is defined as any property acquired by either party during the marriage, which is not within the definition of separate property, regardless of who actually holds title to the asset. So the name on the title or the account is not important when classifying an asset as separate or marital. It is the fact that the asset was acquired during the marriage that creates the presumption that it is marital property.
Separate property is not marital property. Separate property is defined under Domestic Relations Law section 236B(1)(d) as being the following:
Any property acquired before the marriage;
Any property acquired through inheritance;
Gifts to a spouse from anyone other than the other spouse;
Compensation for personal injury cases, but only that part which constitutes punitive damages and pain and suffering and not loss of income;
Separate property that is acquired in exchange for separate property;
Appreciation of separate property if the non-titled spouse did contribute towards the appreciation; and
Property designated as separate by a validly executed marital agreement.
Separate property retains its separate character if it is left alone during the marriage. If separate property is managed actively, if it is commingled with marital assets, put into the names of both parties or put into the name of the non-titled spouse, it can lose its separate character. Each of these ways by which separate property can lose its separate character deserves careful attention.
Actively managed separate property requires some actual management. This means some sort of labor, such as rehabbing a piece of separate real property or active management of an investment account where a significant amount of time and attention is spent managing the account. This is distinguished from “passive” income, which would include the ordinary interest and dividends from separate assets, including, in most cases, rental income on real property.
Commingling property happens when one spouse’s separate property is mixed or combined with the other spouse’s separate property or when it is mixed with some marital property. This is most often done when money is deposited into a joint bank account.
Transmutation of separate property is the change of the character of separate property to marital property. Transmutation may be achieved by agreement, jointly titling the property in the names of both spouses, commingling separate and marital property and gifting it to the other spouse by putting it in their name.
Because of these diverse issues presented by these legal concepts and the drastic financial implications they each can have, it is important that married persons and those getting married, who have separate property should consult with an experienced matrimonial attorney. An experienced matrimonial attorney will be able to offer some good advice on ways to preserve the separate character of separate property and avoid having it become marital property.