Tag Archives: Substantiating Nonmarital Property

Non-Marital Property Becomes Marital Property when Commingled with Marital Property

Be Careful: Non-Marital Property Becomes Marital Property when Commingled with Marital Property

In Wallace v. Wallace, A13-2167 (Oct. 6, 2014), the Minnesota Court of Appeals held that non-marital property in bank accounts became marital property when the funds were commingled with marital property acquired during the marriage.

In this case, the wife asked that funds in a checking account and a savings account be awarded to her as non-marital property. Both accounts had belonged to her before the marriage. However, after she was married, she deposited her wages in the checking account and used the funds in that checking account to pay the couple’s monthly bills. She also made use of the funds in her savings account, by moving funds from the savings account to the checking account when needed to pay bills; she would then repay the savings account with her wages earned during the marriage.

The district court accepted the wife’s argument and awarded her $1,182.27 of the funds in the checking account and $20,076.91 of the funds in the savings account. The husband appealed.

The Minnesota Court of Appeals reversed the district court. The court noted that there is a rebuttable presumption that any property acquired by a married person during the marriage is marital property as well as a presumption that property acquired before the marriage is non-marital property. Minn. Stat. Section 518.003, subd. 3b. When a marriage is dissolved, the non-marital party goes to the party to whom it belongs while the marital party is divided equitably between the parties. Minn. Stat. Section 518.58, subd. 1.

Here, there was no dispute that the spouses commingled the marital property (the wife’s income during the marriage) with the non-marital property that she held before the marriage.   The wife argued that, looking at the balances of the accounts at the start of the marriage, the deposits, withdrawals, and balances at the end of the marriage, the non-marital property could be determined. The court rejected her argument, finding that the only way to maintain the non-marital character of the funds is either to maintain it in a separate account distinct from marital assets or to trace the funds by showing particular items of tangible property that were bought with non-marital funds.

 

How the Court Decided

The court relied on precedents that have held that commingling marital and non-marital funds converts all money in the account into marital property when the account is used for ordinary living expenses and the non-marital funds are not traced to a particular asset.

In order for non-marital assets to remain non-marital assets and belong solely to one spouse, the funds must either be segregated and not used for any marital expenses or must be used to purchase a tangible asset, enabling them to be traced to that asset. Thus, if non-marital assets are used to purchase (in full) a specific item, such as a valuable painting, that painting becomes a non-marital asset. But if the non-marital asset is used for living expenses, then it becomes a marital asset, in the absence of a premarital agreement.

Thus, the court held that all the funds in the accounts were marital property and, therefore, needed to be divided equitably.

In this case, the wife did not file a responsive brief to the Minnesota Court of Appeals. As this case illustrates, even if a party has won at the district court, if the case has been appealed, the party should file a brief in the appellate court. If you have any questions about preserving the non-marital character of your property, you should consult a family law attorney.

Barton v. Barton

Barton v. Barton

In Barton v. Barton, A13-0921 (Mar. 10, 2014), the Court of Appeals upheld the district court’s division of assets, allocating all the equity in the homestead to the wife. The parties had been married for seventeen years, and, at the time the wife sought a divorce, she was a registered nurse while her husband was and unemployed as a result of a work-related injury; he was receiving social security (SSI) and workers’ compensation benefits. The parties agreed that the wife would have full legal and physical custody of their two children.

The wife had inherited money from several relatives, and she used a significant amount of her inheritance to buy the parties’ homestead. The court applied the Schmitz formula; this formula calculates the current value of a party’s nonmarital interest in a homestead that the party purchased during marriage by dividing the equity at the time of the purchase by the value at the time of the purchase and then using that figure to determine the value at the time of the divorce. Any remaining amount is marital property. Because the wife’s nonmarital interest in the homestead was more than the net equity in the home, the court awarded the wife the homestead and divided the remainder parties’ marital property equally.

On appeal, the Minnesota Court of Appeals held that the wife’s nonmarital share of the property included not only the inherited money used for the purchase but also included nonmarital funds paid toward the mortgage when the homestead was refinanced.   The court also rejected the husband’s argument a $16,000 increase in the value of the homestead should have been classified as marital property. The court held that there was no evidence that marital funds had been used to improve the property. .

The fact that the parties owned the homestead as joint tenants did not abolish the nonmarital share of the home. The court held that the nonmarital share is only extinguished if there is evidence that the spouse intended to donate the nonmarital share to the marriage so that it becomes marital property

The court also held that the district court did not abuse its discretion in not finding that the husband suffered an undue hardship from failing to allocate some or all of the nonmarital property to the husband. Under Minnesota Statute 518.58, subd. 2, the court can apportion up to one-half of the nonmarital property if the court finds that, otherwise, there would be an undue hardship for either spouse.   The Minnesota Court of Appeals held that the statute does not require the court to evaluate whether either party would suffer any undue hardship. Here, although the district court found that the husband, due to his disability, would be unlikely to obtain employment in the future, it also found that both spouses earned too little to meet their monthly expenses or maintain their pre-dissolution standard of living.

Although the homestead was the principal issue, the Court of Appeals also rejected the husband’s claim to half of his wife’s retirement savings, as the district court divided the total of all marital assets, including the retirement savings, in half. Because the husband was on fixed disability benefits, the district court allotted all the marital debt to the wife. Thus, the district court did not abuse its discretion in dividing the assets.

The Court of Appeals also held the district court did not abuse its discretion in reserving the issue of spousal maintenance for the husband until the youngest child was emancipated, as the wife’s monthly expenses were greater than her income. She may be able to afford spousal maintenance when the children are emancipated.

Anyone who is concerned about the division of marital assets in a divorce proceeding should consult with an experienced family law attorney.