One of the most common misconceptions about property in a divorce is that if an asset started as separate property, it will always remain separate. That is not necessarily true.
In New York, separate property can lose its separate character, or a portion of it can become marital property, depending on how it is handled during the marriage.
Understanding the distinction can have a significant impact on the outcome of a divorce.
What Is Separate Property?
Under New York law, separate property generally includes:
- Property owned before the marriage.
- Gifts from third parties or inheritances received by one spouse alone.
- Compensation for personal injuries (with some exceptions).
- Property designated as separate in a valid prenuptial or postnuptial agreement.
As a general rule, separate property is not subject to equitable distribution in a divorce.
How Separate Property Can Become Marital Property
The answer often comes down to what happened after the marriage.
1. Commingling Assets
One of the most common ways separate property becomes marital property is through commingling. This means mixing marital property and separate property.
For example, suppose one spouse enters the marriage with $100,000 in a brokerage account. During the marriage, that spouse continues to make regular deposits and occasional withdrawals to and from the account. Years later, it may be difficult, or impossible, to determine which funds were separate and which were marital.
The more intertwined the assets become, the more likely it is that at least part of the account will be treated as marital property.
2. Placing Separate Property Into Joint Names
Retitling an asset into both spouses’ names or depositing separate property into a jointly titled account may be evidence that the owner intended to make a gift to the marriage.
Common examples include:
- Adding a spouse’s name to the deed of a home owned before the marriage.
- Titling an investment account jointly.
- Placing inherited funds into a joint bank account used by both spouses.
Whether the entire asset becomes marital property depends on the specific facts, but joint ownership can significantly affect the analysis.
3. Marital Contributions That Increase Value
Even if an asset remains separate property, the increase in its value during the marriage may not.
For example, if you enter the marriage owning a business, that business would be separate property. However, if, during the marriage, you continue to actively manage and grow the business, the appreciation of the business due to your labor during the marriage may be considered marital property.
The same principle can apply to investment properties, professional practices, and other assets that increase in value because of active efforts during the marriage.
4. Using Marital Funds to Improve Separate Property
Suppose one spouse owns a home before marriage.
If marital income is later used to:
- pay down the mortgage,
- renovate the home,
- build an addition, or
- make substantial improvements,
the non-owning spouse may acquire a marital interest in the property’s increased value.
This does not necessarily mean the entire home becomes marital property. Instead, the marital estate may have a claim to some or all of the appreciation resulting from those contributions.
Tracing Matters
The spouse claiming that property is separate generally has the burden of proving it.
That often requires tracing the asset from its origin through the marriage. Bank records, brokerage statements, closing documents, and financial records can become critical evidence.
Without adequate documentation, proving that property remained separate can be much more difficult.
Not Every Change Converts Separate Property
Importantly, not every change transforms separate property into marital property.
For example, passive appreciation, such as an investment account increasing solely because the market performed well, often remains separate property if there were no marital contributions or active efforts that caused the increase.
Likewise, simply keeping an inherited account in the recipient spouse’s individual name and separate from marital finances often helps preserve its separate character.
The Analysis Is Highly Fact-Specific
Whether an asset is separate property, marital property, or partly both depends on the particular facts of each case. Small differences in how an asset was titled, funded, or managed over the course of a marriage can lead to very different outcomes.
If you have questions about whether an asset may be considered separate or marital property, an experienced divorce attorney can help evaluate the facts and explain how New York law may apply to your situation.
At Greenblatt Law LLC, we help clients identify, trace, and protect separate property while advocating for an equitable resolution of complex financial issues in divorce.
