How Is Separate Property Handled in My Divorce?

In any Colorado divorce case, there are various legal subjects that will need to be dealt with in order to finalize things. As to these substantive issues, the final resolution will come either through the parties reaching a comprehensive agreement, generally called a “separation agreement,” or the parties proceeding to a contested hearing in front of a judge. Under either scenario, one of the significant issues to be deal with will be the issue of dividing up property and the marital estate.

Division of property in a divorce is governed by Colorado Revised Statutes, Title 14, Article 10, Section 113. Under Section 113, the Court is only authorized to divide or allocate “marital property.” A family law court does not have the authority to divide “separate property.” As such, your separate property should be protected and not subject to division. However, the overall analysis is not as simplistic as it may sound. One of the first steps Denver divorce attorneys will take related to property will be to conduct a thorough analysis of your assets, the other party’s assets, and the marital estate in general. Part of the focus of this analysis will be to determine what property is any is separate.

Under C.R.S. 14-10-113, separate property is generally going to be property owned by either party prior to marriage, property received by either party during the marriage by gift or inheritance from others, and property received by gift from the other spouse, presuming it can be shown that the property was intended to be a gift. Statute also clearly enumerates other items of separate property, such as an interests one party may have in a revocable or amendable trust or property obtained via exchanged of separate or premarital property.

Conversely, any property acquired during the marriage under any other means beyond the statutory exceptions is going to be deemed marital in nature, regardless of whose name the property is titled in. To be clear, titling property solely in one’s name during the marriage is not going to protect that property if it is marital in nature. As relates to premarital property, though the property remains the separate property of the party who brought it into the marriage, statute does indicate that any increase in value during the marriage is marital. Thus, complexities and further analysis may be needed in cases of increased value to determine what portion of an asset is marital and what is separate. Some common assets which often require this distinguishing exercise might be a house or a 401K plan. Generally real estate increases over time. A house worth $500,000 at the time of marriage might increase in value to $1,000,000 between then and the time of the divorce. The same might hold true for a dividing a 401K or similar retirement plan. Litigation sometimes arises regarding what the premarital value of an asset might be and, sometimes, experts, such as appraisers or business valuators might be needed to arrive at proper figures.

Using the 401K or real estate example, the property holder is protected in that the court cannot divide the premarital portions, nor require them to sell or dispose of that premarital property. The court can, however, enter orders requiring equity to either be pulled out or paid in some other fashions so as to compensate the other spouse for his share of the marital portion. When dealing with these types of issues, it’s important to have an attorney who understands the ins and outs of distinguishing separate property and who has experience with practically dividing up the marital share of such.

One significant way to protect premarital or separate property, including as relates to increases in value, may be to enter into a premarital or intra-marital agreement pursuant to C.R.S. 14-2-301.

How Do I Make Sure My Separate Property Stays Separate?

In family law cases, pursuant to C.R.S. 14-10-113, any property obtained during the marriage is assumed to be marital property unless it can be proven otherwise. Therefore, it is very important, if you believe you have a property item that should be considered your separate property, that you get and maintain proof of why it is separate. For example, if you owned the property (house, bank account, retirement account, etc.) before the marriage, you should have, and keep, documentation of ownership at the time of marriage. You should also keep documentation as to the value on the date of marriage. Any increase in value from the date of marriage to present will be considered marital so it is important you can prove the value on the date of marriage so you don’t risk the marital portion being overvalued. Likewise, if you receive a gift or inheritance during the marriage, you should make sure to keep all records of that. Like premarital property, any increase in value to these types of separate assets will also be considered marital.

Another important tip to keeping separate property separate is to not put your spouse’s name on the property item. If you put your spouse on the title, account, etc., that will be considered a gift to the marriage and, unless there is valid, written, and signed documentation to the contrary, will make the entire property item marital property in a divorce. I have taken dozens of calls over the years in which someone is going through a divorce, had a house prior to the marriage, put their spouse on the title to that house during the marriage, and then thinks they will automatically just get the equity back. I wish it were that simple.

Along with keeping the property item in your sole name, it is also important that the property item is not combined with any marital property. Mixing separate property with marital property can lead to an argument that the separate property has become marital in nature. For example, if a check for an inheritance is deposited into a joint account, there is an argument that those proceeds became marital in nature. If that money then sits in the joint account and funds are used to live or pay bills, let’s say to pay the monthly mortgage on a joint property, the argument that the funds have become marital only grows stronger. Ultimately, it can become impossible to trace the separate property funds and such will likely be considered marital and subject to division by the court in your divorce case. The best rule of thumb is to just keep any separate property, whether premarital or received during the marriage, separate. There is nothing precluding you from knowing transferring some of those funds into a joint account if you choose so choose.

Furthermore, though this will be shocking, if you have that separate or premarital account, you should avoid depositing your pay check or other income into that accounts. When you get paid, the funds you receive are considered marital. If you mix those funds into your separate property account, regardless of titling, an argument can be made that you commingled marital and non-marital funds to the point of the separate account losing it’s separate identity. I know this sounds ridiculous, but there is case law supporting this notion.

If the funds are deposited into an individual account, into which you also deposit other funds (income, gifts, etc.), it is important that you maintain records/statements to show the amount of the funds remained in the account the entire time. Documentation is king when it comes to sorting these things out. Unfortunately, most people are unaware how important their recording keeping might be in the event that a divorce situation arises. Though some financial institutions keep records for significant amounts of time, banks generally only keep records for 7 years.