An important consideration for individuals contemplating a Virginia divorce is what property they will be giving up during the process. One might ask, will my spouse get a piece of everything I have or are there some things that are just not up for grabs? The answer is that only “marital property” or the portion of property that is considered “marital” can be equitably divided by a court. “Separate property” and the portion of property that is considered “separate” cannot be touched.

Some types of property that are considered separate include:

1. Property acquired before the marriage
2. Property inherited by a party during the marriage
3. Property given as a gift by someone other than a spouse during the marriage
4. Property purchased or exchanged from the proceeds of sale of separate property during the marriage, provided the property acquired is maintained as separate
5. Property acquired after the separation

Generally speaking, marital property is all property acquired by either party during the marriage that is not classified as separate property.

Property that initially is separate can become marital in whole or in part. Additionally, property that is purchased during the marriage with separate funds can be classified as marital and separate. Property that has a marital and separate component is called “hybrid property.” Only the marital portion of hybrid property can be divided by a court. A complete set of statutory rules for classifying property as marital, separate, or hybrid is contained in Virginia Code § 20-107.3.

Separate property can become marital property if the separate property is retitled in the spouses’ joint names unless it is “retraceable by the preponderance of the evidence and was not a gift.” Virginia Code § 20-107.3(f). For instance, if one party has an investment account that existed prior to the marriage and he or she adds the spouse to the account after marriage, the presumption will be that the account has been “transmuted” to marital property. To rebut the presumption, the person claiming a separate interest will have to provide bank statements tracing the separate money that existed prior to the retitling and is subject to the spouse’s claims that such retitling evidenced a gift.

If a party wants to keep their property separate, maintaining separate accounts and avoiding commingling separate and marital funds is a good strategy. However, separating accounts in itself does not guarantee that the property will remain fully separate for purposes of property distribution in a divorce. If the value of the property increases substantially during the marriage due to the “significant personal efforts” of the owner spouse, the other spouse could make a claim that a portion of the asset is marital and subject to division. See Virginia Code§ 20-107.3(A)(3)(a).

For instance, let’s say a husband has a 401(k) worth $100,000.00 at the time of marriage and he funds the account during the marriage with money earned from his employment. The account at the time of separation is now worth $200,000.00. The wife would have a claim for the portion of the increase due to the active contributions during the marriage from the husband’s income. Any passive gains to the pre-marital share due purely to market fluctuations would belong to the husband. If the husband continues to contribute to the 401(k) after marriage, the active increase (and passive increase thereon) in the value of the 401(k) account arguably would belong to him as his separate property.

As a second example, if a wife inherits real estate during the marriage deeded in her sole name and then makes improvements to the property during the marriage and/or pays down any mortgages on the real estate with a joint bank account with her husband, the husband could make a claim for the increase in equity in the home due to the improvements and/or reduction in principal of the loan paid with marital funds.

When separate property is commingled with marital property to purchase jointly titled property during the marriage, there is a presumption that the commingled property is transmuted to marital property. However, Virginia courts will deem the purchased property hybrid if the contributor of separate funds is able to trace and prove their separate contribution. Virginia courts typically use something called the Brandenburg formula to determine the amount of the separate interest. Hart v. Hart, 27 Va. App. 46, 497 S.E.2d 496 (1998). A good attorney can explain how this formula applies to your asset. Courts have discretion to use other methods to determine a separate interest, such as the Keeling formula, but the Brandenburg formula is the most commonly used.

After a court classifies property as marital, separate, or hybrid and determines the value of the property, it then has the power to equitably divide jointly owned marital property and/or make a monetary award to either spouse at the time of the granting of a divorce. The court must consider a set of statutory factors listed in Virginia Code 20-107.3(E)when dividing marital property or making a monetary award.

Individuals wishing to keep their assets separate and away from the hands of their spouse would be wise to take the following actions:

1. Keep separate property distinct from marital property (eg. separate bank accounts and do not commingle funds)
2. Keep separate property titled separately (eg. do not add a spouse to the title for a premarital car or real estate).
3. If separate funds have to be used to purchase marital property or improve marital property, save all documentation evidencing the transfer of the funds (eg. real estate closing documents and bank statements if separate funds are used for the down payment on a house, and receipts, invoices and bank statements for real estate improvements). If separate funds are used for the down payment of a house during the marriage, ask that the source of funds be clearly delineated as a line item on the real estate settlement statement.
4. Avoid using significant personal efforts during the marriage to increase the value of separate property as this could create a marital interest in the separate property (eg.do not create an addition to an inherited house during the marriage).

Even if individuals follow the above steps, there is no guarantee that their spouse will not attempt to make a claim against their separate property. To fully protect separate property brought into a marriage from an individual’s spouse at the time of divorce, one should consider entering into a premarital or postnuptial agreement that clearly spells out ownership of separate property and protects against the operation of Virginia’s transmutation rules.

The attorneys at Wooten Law Group have experience handling complex equitable distribution claims involving tracing separate interests in property so that separate property claims can be maintained at the time of divorce. If you want to learn more about the ways you can protect your separate property from equitable distribution, please give us a call.