When Do Non-Marital Assets Become Marital Assets?
Updated: Aug 4, 2022
Even though California is a community property state, not all assets owned by each spouse are marital property. If something is not marital property, then it is not included in the accounting done to determine the assets to be divided during a divorce. If a spouse owns the property before getting married, that that might not be considered a marital asset. Marital assets are any assets, or conversely, debt, accumulated during a marriage.
There are cases when a property that is acquired during the marriage might fall outside of the realm of marital assets. Inherited property is generally considered to be wholly owned by the spouse that inherited it. Also, if a spouse acquires a property, the couple may sign an agreement to exclude the property as a marital asset.
You MAY notice the language used above. "MIGHT not be considered" and "MIGHT fall outside of the realm." Why do we use such unsure language? Well, it is because there are times when non-marital property could be argued to be a marital asset.
Let's look at two examples. The first example is real estate. When this couple gets married, the wife already owns a vacation home. It is not used as the couple's primary residence. After they marry, they buy another home together. The second example is a business owned by the husband. He started the business years before the marriage and is the sole owner and employee of the business.
At the start, they agree that the business belongs to the husband, and the vacation home belongs to the wife.
For the first few years of the marriage, the husband works the business, and the wife also holds a job, and everything is going along great. After a few years, the business starts to grow and outpaces the income of the wife. They decide that the wife will put her career on hold to have kids and help with the business since it is now more than the husband can handle on his own.
The wife now begins to help with writing proposals, making phone calls, keeping the books, and even meeting with clients when the husband is too busy. Thanks to the efforts of the wife, the business booms. They are now able to hire additional people to work at the business.
Thanks to the success of the business, the couple can start to use the vacation home. Well, the vacation home needs some work since it has not been used. The husband starts to make repairs and updates to the home. The husband hires contractors, paid for the family's money, and makes decisions about the vacation home. The home becomes a true second home to the growing family with a successful business.
As it happens, the marriage doesn't survive, and the couple opts for divorce. The original agreement between the couple is that the business belonged to the husband, and the vacation home belonged to the wife. But, as the years went on, did this remain true?
It could be argued that both the business and the vacation home should now be included as marital assets. The wife placed her career on hold to take care of the family and worked to improve the business. Without her help and input, the business would not have grown or succeeded as it had.
Due to the success of the business, the vacation home became an essential part of the family, and the husband used profits from the business to repair and upgrade the home, making decisions on the best way to proceed.
In both cases, even though the home and business started separate, each became intermingled with each other. Money brought into the family through the business paid for updates to the home, and as they had the ability, they used the vacation home for several months of the year, where the husband would then run the business.
While the law says that separate property can be excluded from the marital assets, to keep them separate, they have to be truly separate. Once assets are intermingled with marital assents, arguments can be made that they are now marital assets despite what the couple might have verbally, or even contractually agreed upon years before when the marriage was brand new.
If you are getting divorced, and there are questions about what is or is not a marital asset, call the Law Office of Tracy Duell-Cazes, known as TDC Family Law.
Tracy Duell-Cazes is a certified family law specialist, as recognized by the Board of Legal Specialization of the State Bar of California. You can reach Tracy at 408-267-8484.