The role of the court in a divorce case is to equitably divide the property and liabilities the parties acquired during marriage.
While each case is different, the same laws govern the division of assets and liabilities in the case.
General Rules in Property Division in Alaska
The property and liabilities acquired by a couple between the date of marriage and the date of separation are collectively called the marital estate.
According to the law, even if:
- The property is titled in only one spouse’s name, it is marital.
- Only one spouse worked, all the assets (including retirement) accumulated during marriage are marital.
- One spouse transfers the marital property to the other spouse during marriage, the property is marital. It does not matter where the property is located. If the parties were residents of Alaska when the property was purchased, then Alaska law controls it – even if the property is located in a community property state.
- You kept separate bank accounts, all the assets are marital.
- You have separate credit cards, all the liabilities are marital.
Assets and liabilities acquired before marriage are not included in the marital estate. An asset you or your spouse received during the marriage as a gift or from an inheritance is not considered to be marital property. But there are exceptions to these general rules. Sometimes, it seems like the exceptions swallow the rules. There are a few situations in which a court might find that separate property (premarital, inherited, gifted) has been converted to marital property. These situations can be devastating to the spouse who came into the marriage with property or inherited property. So let’s talk about some examples.
The family home.
If you owned a home before you married and you lived in the home with your spouse even for a short period of time (even a year) when you get divorced there is a strong probability that the judge (assuming there is a trial) will find the home to have been converted into joint property. Why? Because most couples will move into a home – even if one of them owned it before they got married and they will clean the home, remodel the home, make improvements to the home, and maintain the home. These are all actions, which show (at least to a judge) the parties are treating the home as joint property even if only one of them is on title.
The best protection is a premarital agreement stating the couple’s intent that no matter what happens the home is not going to be included in a property division.
The investment account you inherited from your father, mother, sister or other relatives.
Suppose you inherit an investment account from someone in your family or even a friend. It really doesn’t matter. Generally, assets you acquire during the marriage via a gift or inheritance are not marital property – as long as you are careful to keep the investments in an account in your name only and you do not “commingle” joint money in the account. “Commingling” includes depositing joint funds into the account. It includes depositing sales proceeds from joint property into the account. Making deposits of joint funds into the account and writing checks for joint purchases or expenses increases the risk that the inheritance will lose its character as separate property.
On the other hand, putting your spouse on the account by itself is not fatal in the absence of commingling. But let me repeat that it is not fatal in the absence of commingling. Transferring money from an investment account to a marital account (one or both of your names are on the account perhaps) is not fatal nor is writing a check on the account. In other words, it is not the outflow of money, which creates the problem. It is the inflow of money or the inflow and outflow of money, which creates the risk to you that your money will be fair game in a divorce case.
It isn’t fair to make me share my inheritance with my spouse.
Unfortunately, most people do not know about the risks of commingling an inherited investment account until it is too late. Usually, this means, the divorce has been filed, or the marriage is unraveling. I have had cases in which clients hired financial experts to go through their investment accounts to trace the money in and out of their accounts to try to show the amount of money going out of the account was more than the money coming into the account. This can be complicated when you get into the argument of whether the result favors the inheritance or the marriage. It is also an expensive process to pay a financial expert to do this type of tracking.
So where does this leave you?
Talk to your lawyer. See if it is worth while trying to protect the inheritance. See if your lawyer thinks you have a chance at arguing to your judge that the judge should consider the contribution you made to the marriage with the inheritance.