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Marital Property vs. Non-Marital Property

Marriage is the joining of two people together into one family unit, and that includes their property.  Many married people consider their property in the following terms: what is yours is ours, what is mine is ours and what is ours is ours.  No distinction between “marital property” and “non-marital property” is made: they view it all as theirs, jointly. There are exceptions, particularly when one or both of the spouses have been married previously, but most people go into marriage hopeful and do not spend much time thinking about the distinctions between hers, mine and ours.

Things change when the D word is complicated. One or both disgruntled spouses may claim what is what is mine is mine, what is yours is mine, and what is ours is mine as well. The tension is obvious. The baby must be split, and the difference between “marital” and “non-marital” property takes center stage.  After a divorce proceeding starts, it is usually too late to make any changes that might protect property that have legitimately been considered non-marital property if only the divorce was anticipated earlier.

The Illinois Marriage & Dissolution of Marriage Act (IMDMA) sets the parameters for determining whether property is marital or non-marital. All “marital property” gets divided between the spouses, but “non-marital property” does not get divided. Therefore, the distinction between marital and non-marital property can have a very significant impact on both parties in a divorce. Understanding the difference will help a person contemplating or facing a divorce anticipate the issues to be addressed in the divorce and, ultimately, how single life after the divorced may look.

Many people believe that property titled in their own names is their own property, but that is not necessarily true! Any property acquired during marriage by the efforts of either spouse is considered to be marital property, regardless of the name in which that property is titled. In other circumstances, how property is acquired and titled can make all the difference in the world.

Many people believe that property acquired prior to marriage and inherited property remains non-marital property if there is a divorce. That is generally true, but non-marital property only remains non-marital under certain circumstances.  Understanding how to protect the character of property as non-marital may be an important

Property acquired during the marriage is generally, but not always, considered marital property. Property acquired during marriage can be non-marital property, depending on the source of the property. Exceptions include true gifts from one spouse individually to another, passive income from non-marital assets and inheritances.  These assets are considered non-marital even if they are acquired during the marriage.

Property transferred from one spouse to the other spouse or into both names is presumed to be a gift to the other spouse or to the marriage. Depending on the facts,  such transfers of non-marital property may change it to marital property, subject to division between both spouses in a divorce; or it could make the non-marital property of one spouse the non-marital property of the other spouse (if it is transferred to the other spouse alone)! For final example, when a party receives an inheritance during the marriage, the inherited assets are considered that spouse’s separate, non-martial property. If the assets remain titled in the inheriting spouse’s name, alone, it remains non-marital assets. If the inheriting spouse places non-marital funds money into a joint bank account, it may become marital property; and if the spouse transfers non-marital funds into the spouse’s non-marital bank account, the funds might become the non-marital property of the other spouse.

If non-marital and marital property is mixed so that it is impossible to distinguish between the two, the property will be considered marital. An example might occur when one spouse deposits paychecks into and pays marital bills out of one spouse’s non-marital bank account. If that occurs over a period of time so that the marital funds placed into the account (the paychecks) can no longer be distinguished from the non-marital funds originally in the account, the account may be deemed marital, even though it remains in the name of the original spouse who established it with non-marital funds.

Finally, issues arise when marital property is contributed to non-martial property. For example using wife’s marital income to pay the mortgage on the Husband’s non-marital home is considered a contribution of the marital estate (income) to the non-marital estate (non-marital home). In such case, a determination must be made of the amount of reimbursement that is due to the marital estate for contributions to Husband’s non-marital assets (the home).

There are many good reasons to transfer assets between spouses. They might include estate tax planning, or even simple estate planning, refinancing, to obtain a homestead exemption, asset protection and liability avoidance (if one spouse has credit issues or is exposed to potential liabilities), convenience and other reasons. Commingling or combining marital and non-marital property may have unintended consequences down the road if the marriage breaks down, however.

If divorce is a distinct possibility in the future, there are things that can be done to protect non-marital property. The main principle is to keep it separate, in your name alone.  Do not put your paycheck earned during the marriage into your non-marital bank account.  If you own real estate, do not put your spouse on the title.  If you want the classic car you purchased with your grandfather’s inheritance to remain yours, do not pay for restoration work out of a joint account or put your spouse on title.  In short, keep it separated and keep good records.

If you are taking actions that might change the character of marital and non-marital property, document your intention to overcome the presumption that any transfer or property is a gift. For example, if you take part of your inheritance fund to help your spouse’s business, do a simple promissory note to demonstrate your intent that is a loan, and not a gift.

If you are not yet married, you may want spend some time talking with your spouse to be about your intentions and his or her intentions in regard to non-marital and marital property and reach some mutual understanding. You may want to consider a well written pre-nuptial agreement to eliminate any future arguments over property.  This is especially advised in second marriage situations, when there are substantial assets acquired prior to marriage and/or when there are children from a previous relationship going into marriage. While a pre-nuptial agreement is not entirely fool-proof, it will put you in a better position protect your non-marital property.

Most people going into marriage do not consider the difference between marital and non-marital property. It is not usually an issue if the marriage lasts “until death do you part”. Approximately half of all marriages end in divorce, however, making the distinctions important for roughly half the population.

The handling and characterization of property for estate planning and estate administration purposes can sometimes be at odds with the distinctions of property in marriage and divorce. These are complex issues and guidance from a knowledgeable and experienced attorney is strongly advised when doing estate planning for spouses, but that is another topic.

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