By: Michelle L. Searcy
In Colorado, everything acquired by either party during a marriage is presumed to be marital property regardless of title or possession, with a few limited exceptions. Section 14-10-113(2), C.R.S. lists those exceptions as:
- Property acquired by gift, bequest, devise or descent;
- Property acquired in exchange for property acquired in exchange for property acquired by gift, bequest, devise or descent;
- Property acquired by a spouse after a decree of legal separation; and
- Property excluded by valid agreement of the parties.
Therefore, if your Great Aunt died and left you her car, it is your separate property. If you trade that car in for another car of equal or lesser value, the replacement car is separate property. A legal separation likewise protects your interest in property you obtained after the decree of separation is entered. The final exception requires that the parties voluntarily entered into a marital agreement (post-nuptial agreement) that complies with all of the requirements of section 14-2-309 that was made at a time when the parties intended to remain married. Regardless of exceptions, your actions can potentially lead to your separate property in a divorce being considered marital.
In addition to those exceptions, property owned prior to the marriage is separate property. Section 14-10-113(1), C.R.S. directs the divorce court to set apart each spouse’s separate property. Thus, in the example above concerning your Great Aunt’s car, the court will assure that the car remains your property. Unlike a car, however, which in most cases loses value over time, other forms of property gain value over time. Section 14-10-113(4), C.R.S. states that the increase in the value of separate property during the marriage is marital property. Therefore, if your Great Aunt left you her house worth $300,000 and the value of the house increased during the marriage and is now worth $500,000, the house has $200,000 of marital value, subject to division. Many appraisers are willing to review past records of sales of houses to determine an approximate historical value at the time of the marriage. While the court can divide the increase in value of the separate property, the C\court cannot order that the property be sold to provide the other spouse’s share of the increase in value. In re Campbell, 599 P.2d 275 (1979).
For other assets that increase in value over time, it may not be so simple to determine the marital value of the separate asset. Bank accounts, for example, often exist prior to the marriage. It is not uncommon for a spouse to use the premarital bank account after the marriage. Once the spouse deposits money earned during the marriage into the account, the funds are commingled. To avoid the entire account being considered marital property, the party with a separate property interest in it must be able to demonstrate what portion that remains is separate property by tracing the history of the asset. In re Renier, 854 P.2d 1382 (Colo. App. 1993). This may require providing all of the account statements during the marriage to show that money withdrawn was not replaced by marital funds.
Returning to the example of the car, if the car was traded for a more valuable car that was subsequently traded for yet another car, it becomes more and more difficult to trace the separate property value of the current car. Therefore, if you wish your separate property to retain its nature as separate property, you should avoid commingling it with marital property. Keep the money in a separate account and do not make deposits during the marriage. If you exchange it for other property, maintain excellent records showing each transfer of value. Keep any statements you receive that reflect the increase or decrease of the value of the separate property. Also, do not jointly title separate property or the court will more likely than not consider it a gift to the marriage and marital property in your divorce. In my next blog post, I will discuss marital agreements as a method to protect separate property.