Step 4: Characterize the Assets
Assets are either marital property or non-marital property. By the way, the terms “non-marital property” and “separate property” mean the same thing. The next step after valuation is to characterize all of the assets as either marital or non-marital property.
There is one critical rule to keep in mind throughout this discussion, because it colors everything. Here’s the rule: All property on hand at the time of divorce is presumed to be marital property. If you claim that a piece of property is non-marital property, it’s your job to prove it. Your spouse doesn’t have to do anything at all to prove that it’s marital — it’s already presumed to be marital. If you can’t meet your burden of proof, the judge will decide that it is marital property.
In general, property is non-marital if it is:
Acquired before the marriage
Acquired after the date chosen in Step One
Acquired by gift to only one spouse (gifts to both spouses are marital property)
Acquired by inheritance
Acquired from the proceeds of non-marital property
Let’s talk about that last item.
Suppose that you have $25,000 when you get married. A few days after the marriage, you use that $25,000 to buy a car. You didn’t acquire the car before the marriage, but you bought it with something that you did acquire before the marriage (the $25,000), so the car is non-marital property.
This example can continue on and on. Let’s say that you sell the car for $20,000 and use the money to buy an antique desk. Later, you swap the desk for a painting. Later still, you sell the painting and use the money to buy a CD at the bank.
As long as you can show that the CD came through the painting, the desk, the car, and all the way back to the original, pre-marital $25,000, the CD will be characterized as non-marital property. The law uses the term “tracing” to describe the proof you use to track an asset that you own now all the way back to its non-marital source. Bills of sale, receipts, deposit slips, contracts, and account statements are all used to prove that something you own now was ultimately funded by something you owned before as non-marital property.
Turning non-marital property into marital property
We now turn to one of the more controversial topics in Mississippi divorce law. Mississippi provides two ways in which a spouse can turn his non-marital property into marital property, even without intending to do so. This is controversial because Mississippi’s laws on this subject go in a very different direction than the national trends.
The Family Use Doctrine
Imagine that as a single, unmarried adult, you own a house that is fully furnished. You marry, and over the next 20 years, you have children and raise a family, all in this house. Then your spouse files for divorce.
When you meet with your lawyer, you show him the original deed to the house from 20+ years ago. This deed clearly shows that you are the sole owner and that you owned the house prior to marriage. So the house should be non-marital property, right? Except that your lawyer says probably not.
Welcome to the Family Use Doctrine. Generally speaking, this doctrine provides that when you allow your spouse, and especially your entire family, to use your non-marital property, you have made an implied gift of that property to the marriage (even if you never really meant to make a gift to the marriage or anyone else). So not only is the house marital property, but so is the furniture in the house that you let your family use over the past 20 years.
What if 20 years ago you had known about the Family Use Doctrine? Maybe you would not have let your spouse (or your children) live in your house or use your things if you’d known that you would have to give half of it away if you ever got divorced. That’s one of the criticisms of the doctrine, that it encourages a spouse to hoard what he would otherwise share.
There are a few exceptions. If the marriage only lasted a little while, or the property was used by the family only a little bit, the judge can find that the doctrine does not apply. In a famous case, the court held that just because the kids rode some four-wheelers through the woods that a husband owned before the marriage, that non-marital acreage would not turn into marital property.
Commingling
The second way that non-marital property can turn into marital property in Mississippi is through commingling. It is almost impossible to clearly state Mississippi’s law on this subject, but perhaps some examples will illustrate the concept.
Suppose that a wife inherits a rental property that is in terrible condition. The floor is bowed, the ceiling is falling in, the roof leaks, and there is a strange smell emanating from the central load-bearing wall. The property is in no condition to be rented, and it would never sell for anything more than the value of the dirt.
So the husband takes off from work for a few weeks to overhaul the property. He continues working on the property almost every weekend. The couple pays for the cost of materials by writing checks out of their joint account.
Finally, the property is in show condition. So the wife rents it, and deposits the monthly rent she receives into a new “rent account,” which is in her sole name. She pays property taxes, insurance, and other expenses associated with this property from the rent account.
Is the property marital or non-marital property? In Mississippi, the answer is not quite clear. Certainly the property was non-marital when it was acquired, since the wife inherited it. But the husband’s labor during the marriage was an “asset” of the marriage. Since he expended this “marital labor” on the house and paid for materials from a joint account (also marital property), the now-renovated rental property was acquired through both marital and non-marital sources.
As a very general rule of thumb, the more marital time and effort (especially from the non-owning spouse) and marital money that is invested into non-marital property, the more likely that a judge will find that the non-marital property has been “commingled” and turned into marital property.
Here is another example. Suppose you have been working your entire adult life at the Jones Brick Company. The Company sponsors a 401(k) plan, and you have been contributing to that plan since you were first hired.
At age 30, you have $50,000 in your Jones Brick Company 401(k) account. Also at age 30, you meet the right person, fall in love, and get married.
After the wedding and honeymoon, you continue working at Jones Brick Company, doing the same work, earning the same salary, and making the same contributions into the same 401(k) account as before. Nothing has changed, except now you are married. Every year, the Company gives you a modest raise.
Years go by, until one day you realize that you are about to get a divorce. You meet with a lawyer, who advises you to get recent statements for all of your accounts, including your 401(k). Your current statement shows that the account is now worth $132,000.
Is the $132,000 in the 401(k) account marital property or non-marital property?
One theory would be that the account is now a “mixed asset,” composed of $50,000 in non-marital property, while the other $82,000 that accumulated during the marriage is marital property. There is some authority in the law to support this result.
However, there is also legal authority that would say that the $132,000 has been acquired through both non-marital resources (the original $50,000) and marital resources (the remaining $82,000). Under the “commingled” theory, because the marital and non-marital have been commingled in the same asset, the entire asset should be marital property.
If what we have said so far is not complicated enough already, we can add another level of even worse complexity. Look at our 401(k) example a little more closely. If we reviewed all of the account statements from the date of marriage until now, we would find that the $132,000 on the current statement is actually composed of four elements:
1. The original $50,000 in the account
2. Earnings on this $50,000 during the marriage
3. Additional contributions to the account during the marriage — let’s say $65,000
4. Earnings on the $65,000
There is an argument to be made that not only is the original $50,000 non-marital property, but so are the earnings on that original balance. It can be a difficult chore to segregate the earnings on the original $50,000 from the earnings on the contributions made during the marriage.
Suffice it to say that where the facts point to possible commingling, it can be a time-consuming exercise to sort out the marital from the non-marital. Your lawyer will advise you of the ins and outs of the process. But remember the rule that we set out at the beginning of this Step: All property on hand at the time of divorce is presumed to be marital.
Summary
Both the Family Use Doctrine and Commingling Doctrine are used to convert non-marital property into marital property. Since all property is presumed to be marital at the time of divorce, the spouse who is claiming that an asset is his non-marital property bears the burden of proving that the asset came from a non-marital source (e.g., that it was owned before the marriage or acquired through gift or inheritance, etc.). The same spouse can expect to have the other spouse claim that even if the asset was originally non-marital property, it was converted into marital property because it was either used by the family or else commingled with marital effort/money.
