What Assets Are Protected From Divorce Settlements?

By Beverly Bird

Divorce courts in all states recognize that some property is solely yours, immune from distribution in a divorce. If you must go to trial where a judge will divide marital property for you, the law protects these assets. If you and your spouse negotiate a settlement, you can usually do anything you like with your property and the court will approve your agreement. If you want to follow the letter of the law when you create your settlement agreement, several rules determine what constitutes separate, protected property.

Premarital Property

Assets you owned prior to your marriage are usually your separate property. However, the courts in some states treat appreciation of these assets differently. For example, if your spouse contributed labor to maintaining or improving your premarital property, some courts will award her a portion of its appreciation as compensation for her efforts. In this sort of situation, if your premarital home was worth $200,000 when you married and worth $300,000 when you divorce, your spouse might be entitled to a $50,000 share of the appreciation. Most states will not do this with liquid funds, such as interest-bearing investment accounts or bank accounts, because any appreciation they experience is usually passive. Their value did not increase as a result of any contribution by your spouse.

Gifts and Inheritances

If you receive an inheritance, or if someone makes a gift to you personally while you’re married, these assets are almost always your separate, protected property. However, you usually have the burden of proof if you and your spouse can’t negotiate a settlement agreement and a judge must decide property division for you. You can usually convince a judge these assets are your separate property with documentation regarding their acquisition, such as a will, trust document or another legal conveyance that transferred the property to you and you alone.

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Retirement Benefits

Generally, the only portion of your retirement benefits subject to distribution when you divorce is that which accumulated while you were married. For example, if you worked for the same company for 25 years and you married 10 years into your employment, courts won’t divide the benefits accrued during those first 10 years. This portion is segregated and the balance is divided.

Personal Injury Lawsuit Proceeds

Personal injury settlements and awards can go either way, depending on your state. Many jurisdictions consider them separate property, so they’re safe from distribution to your spouse in a divorce. However, the laws in 14 states and the District of Columbia identify these assets as marital property. In eight of the nine community property states -- Louisiana, Wisconsin, Texas, Washington, Idaho, Nevada, New Mexico and Arizona -- any portion of the award representing lost wages is usually marital property, differentiated from awards for pain and suffering, which are separate property. California is also a community property state, but it treats all components of personal injury proceeds as marital property. The remaining states also make a differentiation between pain and suffering and other aspects of the award or settlement. The portion relating to pain and suffering is usually personal and separate property.

Exceptions

Some state courts will tap into one spouse’s separate property under certain circumstances. For example, in Florida, if you waste marital assets through gambling losses or because you committed adultery and spent money on your paramour, and if there is not enough marital property to compensate your spouse for the money you dissipated from the marital estate, a judge might award your spouse a portion of your separate property instead. You also run the risk of commingling your separate property, meaning that you’ve somehow contaminated it with marital funds. This might occur if you deposit your wages or marital money into your solely owned investment account. However, most courts allow you to segregate the marital portion of such accounts by proving the original value, so you can retain your separately owned balance.

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References

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