As much as we often try to keep things amicable in a divorce or custody case, there are some things that are fairly well established hard and fast rules. Dividing the retirement, for example, and how to handle division of equity in the home – easy peasy.
Some of the more complicated issues are usually child custody and spousal support; that’s often where, if things are going to go sideways, they tend to go sideways.
Separate property, though, is not one of those challenging areas. It’s important to know, ideally in advance, how the law handles the property that you have that is yours alone.
What is separate property?
Under Virginia law, separate property is anything that was earned, purchased, or acquired PRIOR to the marriage, or anything during the marriage that (1) was a gift from someone other than your spouse, (2) was inherited solely by you (as opposed to jointly between the two of you), and (3), less commonly, personal injury settlements.
So, basically, we look at the source of the asset or liability. Was it something that pre-dates the marriage? Then, it’s not marital. If it’s from someone who is not your spouse, it’s also not a marital asset – it’s just a gift to you. These things are yours alone.
What is hybrid property?
While the separate property thing seems straightforward on its face, separate property on the date of the marriage doesn’t necessarily stay 100% separate. It can become hybrid property, which means that it’s part marital and part separate, rather than wholly separate.
To the extent that you increased the value of the asset as a result of marital contributions, you would convert the asset from a separate one to a hybrid one.
Let’s look at an example.
You bought a house prior to marriage, paid a $100,000 down payment, and made monthly mortgage payments on the home for 5 years before your marriage. You married, your husband moved in, and you continued to make mortgage payments each month – only now, those payments were marital in nature, because they came from the paycheck you received during the marriage. That’s money earned during the marriage, even if it’s earned solely by you, and that converts the asset from separate to hybrid.
Let’s change the scenario a bit. If you bought a house prior to marriage, paid a $100,000 down payment, and then used your trust fund to make monthly payments on the home throughout the marriage, it is not a hybrid asset. The source of the money you used to pay the mortgage was yours separately, so the house remains an entirely separate asset.
One more example, okay? Let’s say you bought a house prior to marriage, paid a $100,000 down payment, and, on the day of your marriage, you moved out. You moved in with your new husband. You got a tenant, who moved in the same week, and paid the next mortgage payment for you. Now, five years later, you’ve only ever had a tenant in the home, and you’ve only ever used the surplus money from the rent to make repairs to the home. That’s a separate asset, too, because no marital money went into maintaining the home.
If, on the other hand, you took $50,000 in marital money and used it to add some upgrades to the home in order to attract better tenants and command a higher rental amount each month, then the house is a hybrid asset.
The good news about hybrid assets
Look, this isn’t the end of the world. Just because you used some marital money to pay the mortgage or you did some work on the home from your marital funds doesn’t mean that the house is now 100% marital and he’s going to get 50%.
No – not at all! The separate portion is still separate; we still only divide the marital portion. If all you used that was marital is the $50,000, well, then, that’s all that is divided when you divorce – and, of course, any resulting increase in equity. But whatever you put in, and whatever increase in equity resulted from your contributions is still yours separately.
If you used marital money to pay the mortgage
Keep in mind, too, that if you used marital money to pay the mortgage after the wedding, it’s not a dollar for dollar contribution to the equity in the home. Most of the time, when you pay a mortgage, only a portion goes to the actual mortgage and reduces the loan balance – and, by extension, increases the amount of equity in the home.
A large portion goes to interest, insurance, and taxes, too!
Money After Separation
Whatever you earn, purchase, or acquire AFTER separation is separate property, too! So, if you stay in the home and continue to make mortgage payments after separation, you get credit for that as well. He will literally only get credit for the part that was paid during the marriage using marital money.
So, incidentally, if you win the lottery, you won it AFTER separation. Right? *Wink*
We get a lot of questions about property that you owned before marriage, and it seems to me that most people think that they need a prenuptial agreement to protect these assets. That’s not the case. As you can already tell, Virginia law protects property that falls into the ‘separate’ category already; there’s no need to negotiate a prenuptial agreement to protect it.
If you want to make it very clear that it’s separate, and not to convert it to hybrid in any way, you may want to restructure the way you pay for the asset. But, really, in most cases, this is no big deal. It’s really just a question of figuring out the math; this is not generally a controversial part of the process at all. Even though it sounds like it would be hard (at least, from a mathematical standpoint), this is something we do all the time. No big deal. Promise.
That’s actually one of the things that I hate about prenuptial agreements; people don’t understand what they’re there to do. While it may be different in the case of a celebrity or a super high net worth individual, most of the people that I see are just regular, everyday people. In fact, in most cases where a prenup is involved, I see people with a pretty big disparity in earning – one very high earner (though still ‘normal,’ not like a celebrity), and one very low earner.
No one ever drafted a prenuptial agreement to be MORE fair to their intended spouse; no, prenuptial agreements are designed to modify the way the law would normally apply. Prenuptial agreements take away the things you might otherwise be entitled to receive – like spousal support and/or a share of the retirement.
Prenuptial agreements REMOVE built in legal protections designed to shield the vulnerable. Almost without exception, I’ve seen these wielded in a way that would tremendously disadvantage the lesser earning party.
If you’re just interested in protecting premarital property, a prenuptial agreement is not what you need to accomplish this – nor should you listen to your fiancé if he tells you that’s why he wants one in place. Always, always, always have any legal contracts reviewed by a licensed and experienced Virginia family law attorney BEFORE you sign. Once you’ve signed, your options are severely and irrevocably limited.
Separate property is already protected.
What do you have that’s separate? Now is probably a good time to make a list and to gather any sourcing documentation that you might need.
For more information or to schedule a consultation, give our office a call at 757-425-5200.