Legal Pitfalls In Distributing Marital Property
What is marital property?
Generally, Florida law defines marital estate as an asset or debt accumulated or incurred during the marriage, and there is a presumption that the marital estate should be equally divided between the spouses. The title to the property or debt does not determine to whom it is distributed. That sounds simple, but many complicated legal issues arise inequitable distribution litigation. It is crucial for spouses going through a divorce to obtain competent legal advice regarding who is necessary to join as a party to the divorce action, precisely what constitutes a “marital” asset or debt, and also, what specific actions may convert a premarital or nonmarital asset or debt into a marital one.
When is it appropriate to add additional parties to your dissolution of marriage action to protect your claims?
In certain divorce situations, it may be appropriate to add a third party to your divorce action. For example, if your spouse is a shareholder in a closely held corporation, and distribution to the nonshareholder spouse affects the corporation’s legal or property rights, it may be appropriate to add the corporation as a third-party defendant to a dissolution of marriage action. A similar situation arises when your spouse owns real property titled jointly with another person or entity, as the third party’s legal or property rights may be affected by the divorce court’s rulings as to the disposition of the property. Sometimes, this may even call for your divorce action to include a corporation or your mother-in-law as a third-party defendant. No matter how strange it may sound, please keep in mind that no court can decide the rights or obligations of a person or entity who is not a party to the action, so please be sure to inform your attorney, and obtain competent legal advice regarding contingent assets.
What actions may turn premarital assets or debts into marital assets or debts, subject to “equitable distribution” between the parties?
It is often the case that one or the other spouse owns real property or investments before the marriage. One may also come to the marriage with significant debts with high-interest rates. If these assets or debts have not been used or discharged at the time of a divorce, inevitably, the parties argue about whether they should be included in the equitable distribution scheme. The question then arises: “what turns a premarital asset or debt into a marital one?” The answer is that a couple may convert a nonmarital asset or debt into a marital one when there has been an overt act enhancing the value of the asset, or which evidences an intent to convert nonmarital debt into marital debt.
A good example is a premarital home that has a mortgage on it. If the parties pay the mortgage down with current earnings during the marriage, and perhaps, after marriage, enhance the value of the home by building an addition on it, then potentially, the improved value of the house becomes a marital asset, subject to distribution. The “marital portion” of the home would be that portion of the home’s value that can be attributed to current earnings (pay down of the mortgage principal during the marriage) and, to the addition to home (active appreciation). Similarly, if a spouse transfers premarital assets into the name of the other spouse by, for example, adding his/her name to the deed, depositing premarital funds into a jointly titled account, or, transferring one spouse’s premarital debt into joint names to save interest, it may then become a marital asset or debt, as it is “commingled.” So be careful of your actions, and consult your attorney if problems arise regarding the “commingling” of any significant assets, especially if there are problems on the horizon.
“This content is for informational purposes only and does not constitute legal advice or establish an attorney-client relationship.”