How to Separate Property Appreciation in Marriage

By Marilyn Lindblad

Going through a separation or divorce means dividing different types of assets. Personal property is fairly easy to divide: whoever has it, keeps it or gives it to the other spouse. A couple can divide their real estate with a court order or deed. A bank can transfer funds from joint accounts into individual accounts. Valuing and dividing property appreciation, however, may require an alternative solution.

Property Appreciation

Property appreciation is the growth in value of property over a period of time. In the context of a divorce, the issue of property appreciation often comes up when one spouse owned property in his own name before the marriage, free and clear of his wife. Although the spouse may be able to prevent his separate, premarital property from being valued in a divorce, the appreciation on that property may be an asset the court can distribute.

Sale

One way to separate property appreciation between two people in a divorce is to sell the property. For example, assume a woman owned 100 shares of stock with a total value, on the date of her marriage, of $1,000. During her five-year marriage, the stock appreciated in value so that its total value, on the date of her divorce, was $2,000. A judge could order her to sell the stock with the wife receiving $1,500 of the sale proceeds, representing $1,000 for her separate, premarital property, and the husband receiving $500 of the sale proceeds, representing his 50 percent share of the property appreciation on the stock during the marriage.

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Offset

Another way to divide property appreciation in a marriage is to allow either the husband or wife to keep an item of property, including its appreciation during the marriage, and give the other spouse property to offset the item. For instance, suppose a husband owned a house with $60,000 in equity before he got married, and the house increased in value by $40,000, bringing its worth to $100,000 when he filed for divorce. In that case, a judge could set aside $60,000 as the husband's separate premarital property, let the husband keep the additional $40,000 in equity and allow the wife to keep an asset valued at $20,000 as an offset of her share of the husband's $40,000 of equity he acquired as the property appreciated.

Division

Separating property appreciation in an asset such as a brokerage account is relatively easy. A couple can use old brokerage account statements to establish the premarital value, if any, of the account. Then they can calculate the appreciation on the premarital shares by comparing the present value of those shares to their value on the couple's wedding day. The difference in valuation on those two dates is property appreciation. The couple can then structure their marital settlement so that the account's original owner receives the premarital value of the account plus one-half of the property appreciation, and the other spouse receives one-half of the property appreciation. A judge then signs a divorce decree adopting the terms of their marital settlement agreement and the couple can serve a copy of the decree on the brokerage house, requiring the broker to divide a single joint account into two separate accounts, with each account valued according to the divorce decree.

State Law

A judge follows state law when dividing assets between a husband and wife in a divorce. The way the court divides separate property appreciation may depend on whether your state recognizes community property or uses an equitable distribution model to divide property in a divorce. In any event, you may receive more or less than one-half of property appreciation based on your state of residence. Online resources can help you determine what model your state follows for property division.

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New Hampshire Law on Wedding Rings After Divorce
 

References

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Divorce & Bank Accounts

Sharing of finances can be an important component to marriage. Using joint bank accounts can provide greater flexibility for paying expenses, as well as give the couple a feeling of interdependence. However, if the couple decides to get divorced, each spouse may attempt to claim ownership of money held in these accounts. Understanding the difficulties that courts typically encounter when attempting to classify bank accounts during property division, will help prepare you for your divorce.

Will a Quit Claim Deed Be Reversed by Divorce in Texas?

Texas allows spouses and others to transfer real estate by quitclaim deed, and spouses often make such transfers when they marry. With a quitclaim deed, the transferring spouse grants ownership or partial ownership of the real estate she owns to her spouse but does not guarantee that she actually owns the real estate. If the couple later divorces, the court can divide the property, but does not reverse the previous quitclaim deed.

Divorce Laws of Pennsylvania With a Prior Home Ownership

An equitable distribution state, Pennsylvania requires that courts divide marital property in a way that is fair and equitable. Homes are subject to the same rules as other assets. When considering a house owned prior to the marriage, the first question is whether it is marital property shared by the couple, non-marital property, or some combination of the two. If there is any marital value in the house, there is still the question of how much value is distributed to each spouse. The court makes this determination based on several factors, including the length of the marriage and how much each spouse earns, in order to reach a fair economic resolution.

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