Marital property is property that's acquired during the course of a marriage. It's different from separate or individual property that belongs to either spouse before they were married.
Knowing what constitutes marital property is important when discussing the possibility of divorce or in estate planning. If you're married, it might be helpful to know how marital property is divided under your state laws, whether or not you're contemplating divorce.
Definition and Example of Marital Property
Marital property is simply property a couple acquires together after they're married. Meanwhile, any assets or property that belonged to either spouse before the marriage is considered to be separate or individual property. Inheritances or third-party gifts received after the marriage are also considered to be separate.
In a divorce proceeding, the court will look at both marital property and separate property to decide who gets to keep what once the marriage is dissolved. States can define marital property and separate property differently.
In New York, for example, marital property includes:
- Real property you and your spouse bought during the marriage, except for any contributions of your separate property you may have made to such property, such as paying part or all of the down payment with separate property funds
- Personal property such as cars, boats, airplanes, furniture, and artwork you and your spouse bought during the marriage
- Cash, securities, bank accounts, retirement accounts, and pensions acquired during the marriage
- Advanced educational degrees and permits to engage in specialized businesses acquired during the marriage
- Gifts to each other
Meanwhile, separate property includes real or personal property obtained prior to the marriage, inheritances, and third-party gifts. It also includes compensation for personal injury not related to loss of wages, and property exchange for separate property. Separate property also includes property acknowledged by both spouses as being separate in a written agreement.
Non-marital property is not affected by the debts the other spouse acquired before the marriage. However, debt taken out during the marriage, such as a mortgage, can count as marital debt.
How Marital Property Works
Marital property laws exist in part to ensure that spouses are treated fairly during a divorce proceeding.
If you and your spouse can't agree on how to divide marital property, the courts can step in and make the decision for you. Whether you live in a common-law state or a community-property state can determine whether the court uses equitable distribution or equal distribution guidelines to divvy up marital property.
Equitable Distribution of Marital Property
An equitable distribution of marital property means the courts attempt to divide property fairly between spouses based on specific factors or criteria.
For example, the court might consider incomes for both spouses, their individual financial situations, or what might have prompted the divorce (e.g., claims of adultery). In community-property states, on the other hand, equal distribution gives both spouses a 50/50 share in marital property.
Currently, 40 states follow common-law and equitable distribution guidelines. The states that follow community-property guidelines for dividing marital property are:
- New Mexico
In Alaska, Tennessee, and South Dakota, married couples can decide whether they want to opt-in to community-property rules or not.
Equitable Distribution in Action
So how does marital property division work under equitable distribution rules? Say that you and your spouse are divorcing and you're trying to decide who gets to keep the home you purchased together after you were married. Both your names are on the loan and the deed.
In this case, if your spouse worked but you didn't because you stayed home with your three children, the court might decide to allow you to retain the property so you can continue caring for your kids. Essentially, the court decides what is a fair way to divide the property.
In community-property states, all marital property (including debts and assets) are owned equally by both spouses. So if you opened a joint bank account after you were married, each of you would be entitled to half of the money in the account.
If you have a prenuptial agreement in place, the terms of the agreement may override any distribution of marital property under common-law or community-property rules.
If you live in a state that observes community-property laws, it's important to understand how separate property can become community property. This can happen when separate property is commingled with community property. It can also work in reverse if community property is retitled to become the individual property of just one spouse.
Say, for example, that you own a home prior to marriage. Eventually, you decide you want to refinance the mortgage and you ask your spouse to sign off on the loan with you because they have a higher credit score. They agree, on the condition you also add their name to the deed to the home. You do so, which makes what was once a separate property a community property since it's in both your names.
Here's another example of how it can work. Say your spouse has student loan debt for loans they took out before you were married. They ask you to be a co-signer on a refinance loan. You agree, with the condition that they'll repay the debt themselves. Under community-property rules, however, you're both legally and financially responsible for the debt. So it's possible that you could be ordered to pay half the debt if you divorce as it's technically marital debt now.
Talking with a professional divorce attorney or financial advisor can help you to better understand marital property division laws in your state.
- Marital property refers to property acquired by one or both spouses during the course of a marriage.
- Common-law states and community-property states may apply different rules for distributing marital property in a divorce.
- Separate property can be transmuted into community property, granting equal ownership to both spouses.
- If you live in a community-property state, you and your spouse share equally in any distribution of marital assets and debts.