What is Separate Property? Property which is pre-martial, generally including property that is received prior to marriage or received during marriage as a gift or inheritance, is a separate asset of the receiver. Separate property is not subject to equitable division nor is the appreciation of that property, as long as the appreciation is solely attributable to market forces. Separate Property gifted to the marriage When one spouse has separate property, he must take care to avoid converting his separate property into marital property making subject to equitable division. For example, suppose a Husband owned a house prior to the marriage. That house would generally be considered his “separate property” and not subject to equitable division with his wife. However, further suppose that on the day after the marriage, the Husband transfers the title of his house into his name and his wife’s name jointly. Such transfer is presumed to be his gift of separate property to the marriage. The result is a transformation of his pre-marital separate property into marital property and makes it subject to equitable division.
As another example, should Husband inherit a brokerage account during the marriage, that account is generally considered his separate property. Any appreciation attributable to market forces on those funds is also generally considered his separate property. However, should the Husband decide to transfer the brokerage account to Wife’s name or add her name to the account, that transfer of title is presumed to be a spousal gift to the marriage. The result is a transformation of that brokerage account into a marital asset subject to equitable division. The Husband may be able to rebut the presumption that the conveyance was a spousal gift by showing outside circumstances for which the transfer should not be considered a spousal gift, such as an agreement between the spouses, looming bankruptcy or other legal issues which would justify a transfer of assets. Commingling of Separate Property and Marital Property Sometimes a spouse will use separate funds to purchase a home or other marital property, is this property marital or separate?
In Georgia, when a divorce is filed, courts use the “source of funds rule” to determine the separate property of each spouse and the marital property which is subject to equitable division. Simply put the “source of funds rule” means that a spouse contributing separate property towards the acquisition of property is entitled to an interest in the property in the ratio of the separate property invested to the total separate and marital investment in the property. The remaining property becomes marital property and its value subject to equitable division, allowing the contributing spouse and marital unit to receive a proportionate and fair return on their respective investments.
When relying on the “source of funds rule” it is important to have documentation which provides the value of the asset prior to the asset becoming a commingled and the current value.
For example, Wife had a pre-marital home which was appraised one month prior to marriage and was valued at $100,000.00. Wife owed $30,000.00 on the home. Wife and Husband get married and during the marriage, Husband pays the mortgage. Deed is and has always been in Wife’s name. Husband files for divorce from Wife ten years later, the home is paid off and has just been appraised for $200,000.00. Husband is seeking a 50/50 split of the home. “Source of Funds Rule” Breakdown (percentages based on contribution) 70% Wife’s separate contribution to the home = $70,000.00
30% (Husband’s payment of the Mortgage) Marital Contribution to home = $30,000.00
Based on the “source of funds rule”, Wife is entitled to 70% of the value of the home as her separate property. 30% of the value in the home is marital. Therefore, Husband is only entitled to an equitable division of 30% or $60,000.00.