I’m aware that property acquired during a marriage is generally considered marital property. However, I believe you noted in a recent column that this is also true of a house purchased during a marriage with only one name on the deed.
If one individual receives an inheritance during the marriage, purchases a home solely out of those inherited assets and places only their name on the deed — assuming there is no mortgage — would the home still be considered a marital asset?
In other words: If the inheritance is not a marital asset, is the home purchased with those assets also not a marital asset? Would the most straightforward way to manage this scenario be to work with attorneys on an amendment to the prenup?
Thank you for any insight that you can offer.
Married, But Cautious
That’s a big question.
A property purchased during a marriage with one person’s name on the deed will typically — but not always — be regarded as marital property. It will ultimately depend on the laws of your state, and whether you live in a community-property or equitable-distribution state.
Under community-property laws, anything acquired during a marriage belongs to both parties. With equitable-distribution laws, property is divided fairly, if not equally. The accumulation of marital property typically ends if one or both parties file for divorce.
Whether or not a postnuptial agreement or an amendment to any existing prenuptial agreement will be able to ensure such a house purchase becomes separate property will ultimately depend on the laws of your state. But the good news is that some states do permit this.
However, states typically do not allow couples to waive alimony rights or child-custody decisions — those are usually decided by the courts. That said, whether your spouse would agree to sign such a document is another question entirely. If your marriage is rocky, it may be a flat no.
The perils of transmutation
Generally, property purchased before you are married is deemed separate property. But that property can be commingled — that is, turned from separate property into marital property — in a process called “transmutation” (not to be confused with transubstantiation).
Here’s an example: If you buy a house with your own money before you’re married, and then use funds from a joint account to pay the mortgage or use funds from a joint account to make major renovations to the property, you will have likely commingled that asset.
Even in Minnesota, which is an equitable-distribution state, you would have to make a valid and convincing claim for that property not to be considered community or marital property. The judge in a divorce court would likely have to make the final decision.
“Generally, property purchased before you are married is deemed separate property. But that property can be turned from marital property into separate property.”
“If the house is titled only in one spouse’s name, both spouses have an interest in the house, and one spouse will have to buy out the interest of the other spouse,” according to Williams Divorce & Family Law, a firm based in Woodbury, Minn.
If you buy a house during your marriage with separate assets, tread carefully. “It might even be that the titled spouse buys out the interest of the other, non-titled spouse, in which case the title will need to be placed into the name of the non-titled spouse after the divorce process is complete.”
Here’s more bad news, according to the law firm: “This principle applies to debts as well. If one spouse was left off of the mortgage because they had credit problems, that does not absolve that spouse of co-responsibility to repay the mortgage debt.”
The increase in a property’s value
The same is true in Texas — which, unlike Minnesota, is a community-property state. “Texas considers the property and earnings of both spouses acquired during the marriage community property,” according to the Larson Law Office in Houston.
“It does not matter who paid for the property or whose name is on the title or deed, as long as you acquired the property during your marriage and it was not a gift, inheritance, or certain kinds of personal injury settlements,” the firm adds. The same goes for debt, with some exceptions.
Finally, an increase in the value of separate property in some states, including New York, could be seen as marital or community property by a judge during a divorce if the spouse whose name is not on the title can prove that appreciation was due in part to their efforts.
It’s understandable that some couples want their own financial independence, even while married, and knowing they have separate property can certainly give them peace of mind. But in the event that you are planning to divorce, it may be wiser to wait before making this purchase.
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