What Happens to Assets Gained During a Separation?

So, let me reword the question a little bit from a legal perspective. And that is, what is the timing that the courts use to determine whether an asset is marital versus non-marital and to determine the value of the asset? Should it be at the time of the separation or the divorce? Or some other time?

Well, like everybody else, judges love to use “Bright-Line” rules. And what’s easier, fastest, and Bright-Line than the filing of a divorce? So easy to determine that, right? We could just simply look at the court record and figure out when the divorce was filed and easily say: “okay, any and all assets that were acquired up to that time will be subject to marital division between the spouses and that’s also the Bright-Line for us to determine the value of the assets.”

And this falls in line with the theory behind the rule. The reason why this law exists is because it can be presumed that any asset acquired during the marriage is usually the result of a joint effort. That is: Both spouses may have contributed financially to the assets they have. Or those contributions could be non-marital, such as: staying home and raising the kids; or being the homemaker; or giving love and affection; or immigration, social status, and the list goes on.

So, the law tries to recognize all of these factors and make an easy, quick determination that all the assets acquired during the marriage should be considered to be marital and subject to division between both spouses.

However, does this theory really work? If the couple has already separated and acting like a divorced couple? Or divorced non-couple in that case? Each leading their separate lives? Well, the courts have now come to recognize that there should be exceptions to the general rule. And that is, that the judge has the discretion for him or her to do whatever is just and equitable. And that includes using the time that the parties actually agreed to separate versus the time of the divorce.

But, how do you establish the agreement for the separation? Well, the easiest way is by looking and picking the time that the parties are agreed to.

So, what if there is no agreement? Like, for example, in this case that we are using in our scenario? One of the spouses has got a substantial investment during the separation? Well, the other spouse is going to want to join in on that gain immediately and may even file for a divorce right away just so that he or she can lay claim to that substantial increase in the investment.

Of course, they’re not going to agree to any separation prior to that time. They’re going to claim “oh yeah, they may have lived apart, they may not have communicated very much but the fact remains that they were still happily married and therefore any assets acquired during the separation are subject to a marital distribution.”

So, where the parties can’t agree what do we do? Well, we would argue that we have to take a step back and look at the totality of the circumstances.

For example, there is another mini Bright-Line within the scenario which is that we use the date that the parties lived in different residences. But, what if the couple still lived together for the sake of their children or for financial reasons? Well, we can point to other scenarios, like: the time where the couple started sleeping in separate beds or separate bedrooms; where they started to separate their finances; where they filed single tax returns as opposed to joint returns in the past; the time where they stopped having intimate relations; the time where they consensually started dating other people; and the list goes on.

So, what is the date that we use to determine the value of the asset and/or to determine whether the asset is marital versus non-marital? Well, the general rule is that it’s all considered marital. It’s up to the spouse that wants to assert that the asset is separate apart from the marriage to come in with evidence showing otherwise.

How do we do that? Through an agreement by the parties.

If there is no agreement, then we argue that it’s a date that the parties resided in different residences, in addition to using all the other factors we just discussed. So, the hope is that we would establish a separate date because it is just and equitable to do so.

I hope this short video provided you with some general guidance over a very hotly contested area of the law. Of course, this is not a substitute for an actual consultation with an attorney who can review the specifics of your case in a consultation.

Thank you again for joining me today.

And, as always, stay informed so you can stay strong.