If you and your spouse have decided to call it quits on your marriage, you’ll be joining the line of about 50 percent of other couples that decide to go their separate ways.
The process of a divorce is not an easy one, and usually the hardest part of it is figuring out what property belongs to whom.
We’re not just talking about who gets the fine china from the wedding, but even big purchases such as the marital home and vehicles are all considered and depend on the court for who gets what.
It is important to know the difference to make sure you get your fair share at the end of your divorce case, including what to do when separate property becomes community property and how asset tracing can help your case:
Community property is considered to be everything that a married couple owns together from the beginning of the marriage until the date of separation. Debts (such as credit cards and mortgages) as well as assets are jointly owned too.
Some states are community property states, such as Arizona and Texas, meaning that all money made by both partners and anything bought by either, no matter who paid for it, is equally owned and equally split between both partners. Only gifts or inheritances are exempt from that split.
Separate property is considered to be anything that is earned or incurred before the marriage and after the date of separation. Inheritances and gifts received during the marriage are also considered separate property.
The difficulty with determining what is separate property after the marriage has ended is pinpointing when the date of separation has occurred. This is usually open to debate and subjective.
When Separate Becomes Community Property
However, separate property can become community property and, depending on your state laws, can make the process of dividing everything up difficult.
For example, if you had helped contribute to a down payment on a car for your partner before you were married and then paid it off with community property, you could be reimbursed for the contribution you made before you were married by providing evidence that your own funds were used.
There are many other examples of when this type of situation can occur, so making sure to keep detailed and accurate financial records is very important for you. Having a paper trail of your finances allows you to pull any evidence at any time when your contributions are being questioned in court.
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Asset Tracing and Divorce Court
Asset tracing is the method of supporting claims of property ownership. In a divorce case, it will typically be addressed as something that is exempt from impartial distribution.
In order to make sure your separate property doesn’t commingle into community property, it’s important to follow the rules of asset tracing. Proof of purchase receipts, statements and other such paper and paperless reassurance documents are vital to successfully maintaining separate ownership.
And as assets become older, it becomes harder to trace their origin and ownership. The longer you hold onto these documents, the easier the process becomes. In some cases, transmutation occurs where separate property does in fact become community property. From here, this property is open to equitable distribution laws.
Another huge instance of how separate property can potentially become community property is when a husband finances a home just before marriage. If the husband made a down payment and continued to finance a home for the first 20 years of marriage, it’s presumable his, right?
In most cases, this won’t hold up if the couple had applied community equity. As more and more payments are made, the home starts to take on marital character – hence, a crossroad for debate. Yet, this is another great example of when separate meets community.
When Separate Stays Separate
If you had incurred debts before your marriage, many of those debts will remain yours even after a divorce or after community money was helping pay off those debts.
Educational debts are an example of this; however school loans incurred during marriage are considered community debts.