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Marital Property and Separate Property in Divorce—The Division of Marital Property

Judgment of Divorce and Property Division:

Divorce and division of assetsIn order to make a divorce final, a judgment of divorce must be drafted and ordered by the court. One of the mandatory sections, which must be included in the judgment of divorce, is property division. Here, the court orders the division of real property, personal property, and marital debt.

What is marital property?

Marital property is property “accumulated though the joint efforts of the parties during their marriage.” Leverich v Leverich, 340 Mich 133, 137, 64 NW2d 567 (1954). Meaning, that anything you acquired during the marriage, from wedding day to final judgment of divorce, is considered marital property and is subject to division. Separate property is property acquired before the marriage (even if you were living with your ex spouse before marriage).

Marital property also includes “any increase in net worth that may have occurred between the beginning and end of the marriage.” Bone v Bone, 148 Mich App 834, 838, 385 NW2d 706 (1986). This means that where separate property of one spouse increases in value during the marriage by the active involvement by one of the spouses, it is marital property. Purely passive appreciation (inflation, market appreciation, accumulation of interest) is separate property, not marital.  Reeves v Reeves, 226 Mich App 490, 493, 575 NW2d 1 (1997). So, for example, a home bought by one spouse before the marriage, which has appreciation because of the housing market, is separate property.

Typical Marital Property:

  1. Earnings or replacement of earnings. For example, pensions and defined benefit plans are considered marital property.
  2. Workers compensation and social security. However, Social Security Income (SSI) is not subject to division where as Social Security Disability (SSD) is.
  3. Causes of action in injury awards. The cause of action, the right to sue, not the injury, is considered marital property.
  4. Stock options.
  5. Tax Exemptions. The benefit that comes from the tax exemption, and not the tax exemption itself is considered marital property.
  6. Active appreciation or income traceable to separate property if parties’ direct actions lead to the appreciation of the property (never passive!).
  7. Accounts or finances saved for and intended for children.

What is Separate Property?

Separate Property is property that is not divisible on divorce absent special circumstances (where there is great need or where one spouse contributed to the asset in some way). Separate property includes, but is not limited to the following:

  1. Premarital property, or property owned before the marriage. This includes home or real estate acquired before marriage, even though now the property is titled in both parties’ names.
  2. Passive appreciation (inflation, market appreciation, accumulation of interest)
  3. Assets gifted to or inherited by one party during the marriage. This generally requires the gift be to one party alone and not treated as a marital asset. Examples include, inheritance put in a separate account, trust benefits, gifts…etc.
  4. Pain and suffering awards. Pain and suffering awards are the property of the injured party alone. However, punitive and other damages are subject to division as martial property.
  5. Professional degrees (except where “concerted family effort exception” is asserted by other party).
  6. Job seniority.
  7. Undergraduate degrees.

How is the Marital Debt Handled?

Property settlements in divorce must handle debt along with assets. There is very little case law on debt, but the court often adopts practical considerations. Therefore, regular household debts incurred during the marriage are generally assumed to be joint debts regardless of who signed for them.

Essentially, marital debts are treated as negative assets and are allocated between the parties by the same equity principles the govern property division in general.

However, debt plainly incurred for separate purposes, and not for the marriage, is considered separate debt (gambling, drugs, criminal restitution, extramarital affair…etc).

Conclusion:

Divorce and property settlements can be difficult and can feel overwhelming. Before agreeing to any property settlement and certainly before taking any legal action with your property in divorce, contact our experienced legal team in Grand Rapids at 616-698-0000 or online. We are also available on Skype by appointment.