Equitable distribution is the division of marital property in a divorce. Equitable distribution law is premised upon a marriage being an economic partnership. Marital assets are broadly construed, while separate assets are narrowly construed, as exceptions. An asset is considered separate property, under New York Domestic Relations Law Section § 236 Part B(1)(d) if it is:
- property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse;
- compensation for personal injuries;
- property acquired in exchange for or the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse;
- property described as separate property by written agreement of the parties pursuant to subdivision three of this part.
Martial property, only, is distributed during equitable distribution. It is presumed that assets are marital, unless they fall into one of the four exceptions above. To overcome this rebuttable presumption is a substantial task because if you are proposing that an asset is separate property, you must be able to adequately trace the asset in order to prove it is separate. If you successfully meet this burden of proof, the asset will be considered separate property and, thus, not subject to equitable distribution.
If you are unable to trace your assets to a separate property source, courts will treat the property as marital and the asset will be subject to equitable distribution. Two ways you can show an asset is separate property are:
- Keeping the asset in sole name and not mixing it with any marital assets
- by tracing the history of the asset to separate property; and
- by showing that there were no alternatives other than the funds to acquire the asset being separate.
In Sarafian v. Sarafian, the Husband sufficiently rebutted the presumption that treasury bonds were marital property when he could show that there was no other possible source of money for the purchase of treasury bonds besides his separate funds. On the other hand, where the Husband’s testimony as to the source of funds of four bank accounts was “vague, evasive and inconsistent,” the Sarafian court was reluctant to determine that the assets were separate. In Cerretani v. Cerretani, the Husband lacked documentary evidence tracing the source of funds for an investment into a corporation he had made during the marriage, even though he said he invested separate funds. Therefore, these funds were deemed marital.
To complicate matters, when separate property is commingled with marital assets, it sometimes converts to marital property. One simple example of comingling funds is when money from a pre-marital separate account is transferred into a marital joint account. When assets are commingled, the burden is on the person claiming separate property to prove the asset was commingled for convenience only. For example, in McGarrity v. McGarrity, the Husband was able to trace the funds for a joint account to separate property (his inheritance) and, therefore, that account was deemed his separate property not subject to equitable distribution. On the contrary, in McSparron v. McSparron, the wife’s mother contributed funds to the parties’ joint account which was held to be marital property because it evidenced the mother’s intention for the parties to share it equally.
It is clear from the above cases that the Courts’ determinations are very fact-specific. it is prudent to carefully and diligently track separate assets before and throughout the marriage. Maintaining adequate and updated account statements, valuations, and the like, can assist parties should a divorce arise. Potential divorce parties should carefully consider maintaining sole title on all pre-marital assets so they are not converted into marital property. If you have any questions on protecting or tracking separate property and the conversion from separate property to joint property, please call Danziger and Mangold today and ask to speak to one of our divorce lawyers.