Divorce is a complex and emotionally challenging process, often compounded by the financial entanglements that come with it. One of the critical aspects of a divorce settlement is the division of assets. While many assets are straightforwardly divided between the parties, there are specific types of assets that cannot be split. Understanding what assets cannot be split in a divorce can help both parties manage their expectations and navigate the process more smoothly.
Understanding Marital vs. Separate Property
Before delving into the specific assets that cannot be split, it’s essential to distinguish between marital property and separate property. Marital property includes all assets acquired during the marriage, regardless of whose name is on the title. Separate property, on the other hand, includes assets acquired before the marriage, inheritances, gifts specifically given to one spouse, and certain personal injury awards.
Types of Assets That Cannot Be Split in a Divorce
Personal Inheritances
One of the most common assets that cannot be split in a divorce is personal inheritance. If one spouse inherits money or property from a relative and keeps it separate from the marital assets, it remains the sole property of the inheriting spouse. For example, if a spouse inherits a sum of money and deposits it into a separate account, that money typically remains their property.
However, if the inheritance is commingled with marital funds, such as being deposited into a joint account or used for marital purposes, it may become part of the marital estate and subject to division.
Gifts
Gifts given to one spouse by a third party are generally considered separate property and cannot be split in a divorce. This includes gifts given before or during the marriage. The key factor is that the gift must have been intended for only one spouse. For instance, if a friend gifts one spouse a car or jewelry specifically for them, it remains their property.
Personal Injury Awards
Compensation from personal injury lawsuits awarded to one spouse for pain and suffering, disability, or disfigurement is usually considered separate property. This means the other spouse has no claim to it. However, any portion of the award intended to compensate for lost wages or medical expenses incurred during the marriage may be considered marital property and subject to division.
Pre-Marital Property
Assets that one spouse acquired before the marriage are considered separate property. These can include real estate, bank accounts, investments, and personal items. For example, if a spouse owned a house before the marriage and kept it solely in their name, that house is generally considered separate property.
Pension Plans and Retirement Accounts (Under Certain Conditions)
Pension plans and retirement accounts can be tricky in divorce proceedings. Generally, any contributions made to these accounts during the marriage are considered marital property and subject to division. However, contributions made before the marriage are considered separate property and cannot be split. The challenge often lies in determining the value of contributions made before and during the marriage.
Trusts
Assets held in trusts can be either marital or separate property, depending on the trust’s terms and the source of the assets. If the trust was established before the marriage and is irrevocable, meaning the terms cannot be changed, it is typically considered separate property. Similarly, if a trust is established for the sole benefit of one spouse and funded with separate property, it remains separate.
Business Interests (Under Certain Conditions)
A business owned by one spouse before the marriage is generally considered separate property. However, if the business grows or increases in value during the marriage, the increase in value might be considered marital property, especially if the other spouse contributed to the business in some capacity. The original value of the business remains the separate property of the owning spouse.
Factors That Complicate Asset Division
While the above assets are generally considered separate and not subject to division, several factors can complicate the process:
- Commingling of Assets: When separate assets are mixed with marital assets, they can lose their separate status. For example, using inherited money to renovate a marital home can make that money subject to division.
- Transmutation: This occurs when separate property is treated in a way that indicates it is marital property. For instance, if a spouse adds the other spouse’s name to the title of a house they owned before the marriage, it can be considered marital property.
- Prenuptial and Postnuptial Agreements: These agreements can outline specific terms for asset division and may override standard property classifications. A well-drafted agreement can help ensure that certain assets remain separate.
- State Laws: Divorce laws vary by state, and some states follow community property laws while others follow equitable distribution laws. Community property states generally divide marital property equally, while equitable distribution states divide property in a manner deemed fair by the court.
Protecting Separate Property
Given the potential for separate property to become marital property through commingling or transmutation, it is crucial to take steps to protect separate assets. Here are some tips:
- Keep Documentation: Maintain clear records of all assets owned before the marriage and any inheritances or gifts received. Documentation should include account statements, deeds, and other relevant paperwork.
- Avoid Commingling: Keep separate property distinctly separate from marital property. This might mean maintaining separate bank accounts and avoiding using separate funds for marital expenses.
- Consider Agreements: Prenuptial and postnuptial agreements can help define and protect separate property. These agreements should be drafted by a lawyer to ensure they are legally binding.
- Seek Legal Advice: Consult with a divorce attorney to understand how state laws may affect your property and to develop a strategy for protecting your assets.
Conclusion
Understanding what assets cannot be split in a divorce is crucial for managing expectations and protecting one’s financial interests. Personal inheritances, gifts, personal injury awards, pre-marital property, certain pension plans and retirement accounts, trusts, and business interests are typically considered separate property and are not subject to division. However, complexities such as commingling, transmutation, and varying state laws can affect how these assets are treated.
Taking proactive steps to document and protect separate property can help ensure that these assets remain intact through the divorce process. Consulting with a legal professional can provide guidance tailored to your specific situation and help navigate the intricate landscape of asset division in divorce.
