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Minnesota Divorce Laws: Marital v. Non-Marital Property

Posted by Attorney Stephen Hance | Mar 29, 2013 | 0 Comments

In any divorce case, there is usually a division of assets and a determination of each person's responsibility for debts.  Minnesota, like most states, is a “marital property” state.  This means that any asset acquired and any debt incurred during the marriage is the asset or debt of both parties.  Minnesota law uses the concept called “equitable distribution” to divide the marital assets between spouses.  Equitable division is based on the principles of fairness.  It does not mean you will automatically receive half of everything.  In Minnesota, the court decides what an equitable division of assets is.  While it is true that marital estates are often split more or less down the middle, the court has discretion to award either spouse 0-100% of the marital estate, depending of the circumstances.  The court factors in things like how long the marriage lasted, what each person brought into the marriage, how much each can or does earn, responsibilities for children, retraining, tax consequences, and debt.  However, it should be noted that if, prior to or during the marriage, a marital agreement is signed, you may have more control over how assets are divided.

Determining what goes into the marital estate requires an analysis of what property is marital and non-marital.  The distinction between marital and non-marital property is important because, unlike marital property, non-marital property belongs entirely to the person who acquired it.  Although the court has some authority to award a spouse up to one half of the non-marital property of the other spouse, this is only in cases of unfair hardship, and is extremely rare.  Usually, only marital property is considered in the equitable distribution.

Non-Marital Property:
There are two main forms of non-marital property. The first is property acquired before the marriage or in exchange for property acquired before the marriage.  For example, if prior to the marriage you own a boat, and during the marriage you trade the boat in for a different boat, then the new boat is your non-marital property.  The second common form of non-marital property is property acquired as a gift or inheritance made by a third party to one spouse but not the other or any property acquired in exchange for such property.  Likewise, if during the marriage your father gives you the boat, then that boat is your non-marital property. If you sell the boat and use the proceeds to buy a car, then the car is your non-marital property. This would also apply if, instead of receiving the car as a gift, you inherited the car from your father.

Despite the above examples, someone facing a potential divorce needs to be aware that the court presumes that all property belonging to either spouse is marital property.  Thus, the burden of proof is on the person claiming a non-marital interest in property to prove that the property is in fact non-marital.  Therefore, when you acquire property by gift, or want to protect pre-marital property from being awarded to your spouse, you must be very careful not to commingle the property with marital property e.g., don't deposit it into any joint accounts, or it becomes very difficult to trace.

Marital Property:
Marital Property includes all assets owned by one or both of the spouses unless, as mentioned above, one of the spouses can prove that the asset is a non-marital asset.  In Minnesota, all property acquired during the marriage by either party is presumed to be marital property.  This means that earnings and property acquired by either spouse are viewed as joint property.  The underlying philosophy is that marriage is a full partnership, and that the contributions of a homemaker are equal in value to those of the bread-winner.  This even includes pensions and retirement investments acquired or earned during the marriage, as well as equity in property built up during the marriage.  It does not matter whether an asset is titled to one or both spouses.  Assets held in the name of one spouse are among the assets to be divided in a divorce.

Furthermore, non-marital assets may lose their non-marital characteristic ifnon-marital proceeds are commingled with marital proceeds so that it becomes difficult to identify the non-marital asset.  Additionally, spending marital money to improve a non-marital asset may also create a partial marital interest in an otherwise non-marital asset.

Real Estate:
Often, one spouse has a house prior to the marriage, but with an outstanding mortgage, which is in part paid off during the marriage.  Courts have developed methods for apportioning the value of such real estate to give one spouse credit for his or her non-marital interest, while giving the other spouse credit for half of the value of the equity increase in the house during the marriage.  It does not matter which party wrote the mortgage checks every month.  Earnings by either party during the marriage are marital earnings.  When the parties acquire increased equity in a piece of real estate during the marriage as a result of paying down the mortgage with marital earnings, both parties are entitled to half the value of the marital equity.  The formulas for calculating these interests are complicated.  You should consult with an attorney if you find yourself faced with this issue.

As with property, the court is required to apportion marital debt in a manner that is “just and equitable.” Any debt incurred during the marriage is considered a debt of the marriage. Typically, if a debt was incurred for an education that primarily benefits one party, not both, the debt is generally deemed to be the debt of the person in whose name the debt is held, e.g. school education debt.  Debts that encumber an asset, e.g. a car loan, are typically assumed by the person who receives the asset.  The debt is subtracted from the fair value of the asset to determine the equity value of the asset.  Debts that are not secured by an asset, e.g. credit card debt, are divided between the parties as the parties agree.  The division of debts does not have to be equal and parties can consider the relative income available to each of them in making a division of the debts.

The determination of whether an asset is marital, non-marital, or a mixture of the two is complex and an attorney should be consulted to determine if the burden of proving that the asset is non-marital can be met.  At Hance Law Firm we understand that divorce is traumatic, but we also know that during this difficult time you will be asked to make legal and financial decisions that will affect the rest of your life.  Our attorneys will work with you to develop a strategy for addressing the division of your marital property that will allow you to feel empowered, protected and confident in your legal representation.

About the Author

Attorney Stephen Hance

Steve represents and advises clients that are dealing with business and real estate disputes. Steve is an investor and business owner, and his approach is unique from other attorneys.


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