By: Jessica A. Bryant
One common question that arises when people are contemplating a Colorado divorce, or entering into a marriage and wanting to protect themselves for the future, is how to make sure their spouse can’t get their pre-marital or other separate property items in a divorce.
Separate property takes several different forms, including:
– Property obtained by gift or inheritance (ex: trust funds, funds received from a deceased relative, real estate received by inheritance, funds provided by gift, etc.);
– Property obtained in exchange for property owned prior to the marriage or property received by gift or inheritance (ex: trading in a car you had before the marriage for a new car, using funds from the sale of a home obtained by inheritance to purchase a new home, etc.);
– Property obtained after a decree of legal separation is entered (if you go the route of seeking a legal separation instead of a divorce, once you get that decree, property you acquire is considered separate);
– Property agreed to be separate by valid agreement of the Parties (i.e., pre-nuptial or post-nuptial agreements but the statute specifies the agreement must be valid so it is advised you consult with a Colorado divorce attorney before entering into and relying on such agreements to ensure validity)
In Colorado 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.
Additional protections for separate property can also be gained via a premarital agreement, or intra-marital agreement, but that’s another topic for another day.
You have the power to protect your separate assets before and during your marriage. This does not mean you can’t share them with your spouse. Just make sure you share with intent and a clear understanding of what you are doing. Following these few tips may save you significant time and money down the road. You’ll thank me later. Your attorney will, too.