If I file for divorce, how can I protect certain assets from my ex?

Find out how the state of New York handles property division, and what you need to do to keep certain assets from your spouse.

By Divorce Magazine
May 24, 2006
NY FAQ/Financial Issues

The answer to your question depends upon what type of assets are involved, when and how they were acquired, and whether or not your spouse played any part in increasing their value. As you probably know, in New York State, all property (except for gifts and inheritances) acquired once you become married is considered "marital property." All other assets that you had before the marriage -- or acquired before or during the marriage by gift or inheritance -- are considered your "separate property."

Things can get a little complicated if there is any "commingling" of your separate property with marital property, or if your spouse helped to increase the value of your separate property. In the second example, it is possible that a court will look to the value of your separate property on the dates either when you were married or when you "commingled" it (see below) and when your spouse helped to increase its value. What the court might do is find that the portion of the asset you had before commingling, or before your spouse helped to increase the asset's value, is still your separate property, but that the increase in value is marital property. The court then determines what percentage of the marital property portion should go to you and what percentage to your spouse.

Family heirlooms should be easy to protect if you file for divorce, unless your spouse invested money or effort into restoring a painting, for example, and making it more valuable. The rule you should always follow, if possible, is to never commingle your separate property with marital property. Thus, if you inherited a stock portfolio, you and your spouse should never trade in and out of that portfolio. You should always have a separate marital or joint portfolio. The rule is exactly the same for a savings account, a certificate of deposit, a trust account, a checking account, or virtually any asset you can think of. If you do commingle, you can still protect your separate property as long as you can show a court (or the other side in settlement negotiations) that you can trace the money from account to account or investment to investment. Obviously, you must keep very careful records.

What happens if you take a certain amount of money from your separate property and invest it into a home for you and your spouse? Again, you must be able to trace and to show that your separate property formed part of the purchase price. Always keep your checks and other records. The courts sometimes will treat this investment of separate property into the marital residence a little differently. Some courts will give back to you a dollar-for-dollar credit only for the amount of money you originally put into the home, even if it increased in value. Others will look at the increase in value and either give you the interest on the investment you otherwise would have been able to obtain or some other appropriate compensation for the increase in value.

One problem you may have, especially with respect to the marital home, is that a court may treat your separate property contribution as a gift that you have made to you and your spouse, i.e., to the marriage. It is always possible that a court may treat commingling of separate property with other assets as a gift or partial gift, as well. Again, careful record-keeping, especially as to your intention, is very important.

Remember that your spouse's contributions to the increase in value of your separate property can be either direct or indirect. What this means is that credit for an increase in value can be given by a court for the "indirect" contributions of a spouse who has made her or his contributions primarily in the form of a homemaker, a primary parent, or, another example, as someone who is extremely handy around the house and takes care of all repairs, or the spouse who schedules most social engagements or family activities. If, however, the increase in value to your separate property is due solely to market factors, such as a stock market or real estate boom, and the portfolio or house was always your separate property and there were no direct or indirect contributions by your spouse, then your spouse will not be allowed to participate in the increase in value of your separate property, nor will your spouse be able to obtain any of the original value of your separate property.

Susan Y. Kunstler's New York City law firm has represented women and men in all areas of matrimonial and family law, including tax issues, for more than 25 years. She lectures, chairs bar association committees, and presents programs in the field.

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By Divorce Magazine| May 24, 2006
Categories:  FAQs

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