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.