As always, before reading my post please review my disclaimer by following the link above or by clicking on this link. As always, any legal principles discussed apply only to the Commonwealth of Virginia.
Introduction
One of the most important and well-known topics that comes up in divorce law is the division of property. It is also a topic that I have almost completely avoided on this blog. It's not that I don't think it's important - it most certainly is important. Rather, I have had trouble coming up with ways to talk about it while keeping blog posts on the topic of a reasonable length. You see, I can go on and on about the weird rules of spousal support, or how you calculate child support, but in my personal opinion, nothing about divorce law is more complicated than the laws surrounding the division of property.
Virginia is an "equitable division" state. We are also not a "community property" state. What this means is that we do not consider all property owned by married couples to be eligible for division, and when property is divided, there is no presumption that it should be divided 50/50. As a result, there are very complicated statutes on property division, and very, very many volumes of case law interpreting it. Today, I've decided to start addressing some of these issues, and to do so I'm starting at the beginning - what property actually gets divided?
Today's blog post will give a brief overview of the meaning of marital property - the property that gets divided in a divorce. Even this is a complicated concept with volumes of case law, so today's post will remain fairly basic.
Marital Property, Separate Property and Hybrid Property
So, as you can probably guess from the names, marital property is property that is considered to belong "to the marriage," while separate property belongs "to the person." Marital property is divided in a divorce, separate property is not - it stays with its owner. Hybrid property is property that is itself both separate and marital, so only the marital portion of hybrid property is divided.
All property you own prior to the marriage is generally considered your separate property. Similarly, any property you acquire after you separate is also considered your separate property. Some examples of this may be a retirement account that you owned before you were married - it is your separate property. A bank account that only has money in it that you earned after you separated - also your separate property.
All property you acquire during the marriage, however, is generally considered to be marital. Money you earn during the marriage, for example, is marital property, and the things it purchases are marital property.
But what happens when you mix separate and marital property?
Transmutation vs. Tracing
The general rule is that if you mix separate and marital property, the whole property becomes "transmuted" to marital property. There is an exception, however, where the owner of the separate property can "completely trace" his property.
I will give two examples. If you had a bank account before marriage but then started depositing your marital income into that account, the account will become marital. Money is fungible, and as a result, there is no realistic way to figure out what portion of the bank account is now marital and what portion is not.
On the other hand, if you use an entirely separate bank account to pay half the down payment on the house, and you can prove that the money was, in fact, used for the down payment, you now know what share of the initial equity in the house was separate, and can use that to calculate the portion of the house that remains separate.
Marital Contributions to Separate Property
There is another rule of some importance to know as well. If you bring separate property into the marriage, but then contribute marital property to it, or either party makes significant efforts to assist it during the marriage, and the property has a "substantial" increase in value, it might become hybrid property. There are several situations where this comes up - for example, a separately owned house brought into marriage where substantial work and improvements are then performed on it during the marriage. A recent Virginia Supreme Court case also counted as hybrid a pre-marital retirement account to which no contributions were made during the marriage, but on which the spouse who owned it had done a great deal of work in terms of active trading to increase its value during the marriage.
Retirement Plans
Now, I've alluded to retirement plans a couple of times, but they are one of the harder bits of property to define, so I do want to address that as well. Retirement plans come in two forms - defined contribution (such as an IRA or 401k) and defined benefit (such as a pension). Both are considered property in divorce, not merely future potential income, although payments from these plans can be considered income for the purpose of determining support (the interplay between income for support and income for property division is a whole other issue probably worthy of its own post). As a result, both are divisible, even if you are nowhere near retirement age yet.
For defined contribution plans, the "marital share" is generally considered to be all contributions made during the marriage, and the earnings and losses thereon. Contributions (and their earnings and losses) from before the marriage and from after the separation are generally considered a separate portion.
For defined benefit plans, there are a number of approaches that can be taken to determining the marital share, but the most common I have seen is the fraction formula. In the fraction formula, the percentage of the defined benefit plan that is considered marital is equal to an equation defined as x / y * 100 (you can leave out the 100 if you are just going for a decimal fraction rather than the percentage). In that formula, x is the number of months you were employed by the employer offering this plan where your month of work was credited towards your plan and you were married and not separated. For the denominator, y is the total number of months of work credited towards your plan as of the date you retire, whether married or not. Usually x will be defined by the date of divorce, but y will not be, and that's alright - y is not expected to be known yet as of the divorce date and the division can still be done with y unknown.
Now, it is worth noting that unlike the other areas of law in property division, there is a specific rule regarding division of retirement accounts. Specifically, once you have determined the marital share of a retirement plan, the non-owning spouse cannot be awarded more than 50% of the marital share of a retirement account. This was done to prevent people from potentially having their retirement savings wiped out by a divorce.
Restricted Stock Options
Another complicated area of property law is restricted stock options - these being stock options frequently awarded by employers which cannot be exercised until a certain date. If that date is after the separation, then you don't really have these options before the separation, so there is some debate in the law about whether they are marital or not. The general rule as it stands right now is that if they were earned during the marriage (so, for example, they were given as a bonus for work done during the marriage), they are marital, regardless of when they vest. If, however, they were given by employers not as compensation for work done, but rather as merely an incentive to continue working for that employer, then they are separate if they vest after the separation date.
This is an area of law that is still evolving, however, and I cannot say the above is the final word on the matter.
Separate Property Acquired During the Marriage
Now, there are some exceptions to the rule that property acquired during the marriage is marital that are worth discussing. The first exception is that property acquired during the marriage solely with separate property (so, for example, a TV bought with money from a separate, pre-marital bank account) is still separate. The second is that anything inherited during the marriage is separate property, unless the inheritance is from a will that specifically bequeathed the inheritance to the couple, rather than just one of the parties. The third is that any gifts that are given by someone other than the person's spouse to the person during the marriage also remain separate property.
Ownership Presumptions
I'm going to wrap things up here because this post is already longer than I'd like, but I do want to note that the law does have some presumptions regarding ownership that are worth remembering.
First and foremost, any property that is jointly owned is presumed to be marital. You can rebut this presumption with some strong evidence, but it is fairly unusual that a court will consider something jointly owned to be entirely separate - at best, you will sometimes get a finding of hybrid property.
Second, the law also presumes that property that is separately titled is separate. That being said, this presumption is much easier to rebut, because as soon as you show that the property was actually acquired during the marriage, the presumption switches to it being marital property.
Nonetheless, it is important to know these presumptions because of their impact on the burden of proof. If property is jointly owned, the party trying to prove separate ownership has the burden to prove it. If the property is separately owned, the party trying to assert marital ownership has the burden to establish that it was acquired during the marriage, but then the other party would have the burden to establish that it was still separate property.
Conclusion
The law surrounding property division is, in my opinion, the most complicated part of property law. Consider that this entire blog post only even talked about what property gets divided - we didn't even touch how that division is actually done - and we didn't even talk about all the topics in that arena. This is one of the biggest reasons why you should get an attorney if you have any property at all that needs to be divided. If you are involved in a divorce and have property to be divided, please feel free to call (703)281-0134 or e-mail me at SLeven@thebaldwinlawfirm.com to set up a consultation. Our consultations are free for up to half an hour!
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