What Is Marital Property?
In dividing marital property, a court must first distinguish between marital and separate assets. When an asset is the separate property of one spouse, that increase in its value that occurred during the marriage is still marital property if the increase is due to the active involvement of one of the spouses, rather than simply passive appreciation. Assets accumulated when the parties cohabitated before marriage are not considered marital property.
Marital assets are typically valued at the time of trial or the date of entry of the divorce judgment. Thus all increases are considered marital property until the marriage ends (either through death or entry of a divorce judgment). But property received after a divorce may be considered marital property if the property was obtained by efforts that took place during the marriage.
The following are things generally not considered to be marital property:
- Assets accumulated while cohabitating prior to marriage;
- Property received as an inheritance by one spouse that is kept separate from marital property;
- Increases in the value of a separate asset that are the result of passive appreciation (e.g., interest)
Despite these general rules, however, separate property can be distributed as part of a property division in a divorce if the marital property to be divided is insufficient.
When one spouse repeatedly tries to hide assets from the other in contempt of court, the court is required to take punitive action against the wrongdoing spouse.
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Although there is no hard and fast rule, factors for the court to consider are:
- Duration of the marriage;
- Contribution of the parties to the marital estate;
- Age of the parties;
- Lifestyle and status of the parties;
- Necessities and circumstances of the parties; past relations and conduct of the parties; and
- General principles of equity.
This is not an exhaustive list, and the court may consider additional factors in a particular case. Conversely, all of the factors may not apply in each case, and the court is not required to give them equal weight. Fairness is the overriding concern, and when any of the factors are relevant to the value of the property or the needs of the parties, the court must make specific findings of fact.
- Worker's Compensation and Social Security Disability: They are considered part of the marital estate if received for injuries sustained during the marriage
- Social Security Benefits: A spouse is entitled to a portion of the other spouse's social security benefits only if the benefit has a present, ascertainable value. Social security benefits are not a marital asset, but may be considered when determining child support and spousal support.
- Stock Plans and Stock Options: Vested stock options are marital assets, as are pensions. Stock options not yet vested or matured are treated differently.
- Professional Degrees or Licenses: When the degree is achieved through a concerted family effort, the contributing spouse has a claim for compensation for their sacrifices, efforts and contributions. But the claim is not for a share in the lifetime investment value of the degree.
- Retirement Assets and Pensions: Retirement benefits are not part of the marital estate unless the parties so agree. Each distinct component of a pension plan must be specifically awarded in the divorce judgment. The right of survivorship in a pension plan will not be given to the divorced spouse unless it is specifically included as part of the pension award in the judgment of divorce. Generally, only benefits earned during the marriage will be awarded in a divorce, unless they contributed to the acquisition of the benefits or the award to the claimant spouse from the marital estate is insufficient to maintain them.
- Damage Awards in Tort Lawsuits: A tort lawsuit (and any damages awarded therein) is a marital asset. A person injury award for pain and suffering is personal to the injured party, but may be taken into account in a property settlement in the same way as any other separate property.
What About the Tax Consequences of a Divorce?
Michigan law requires that courts take into consideration the tax consequences of stock options, and things such as the value of banked leave days. But the party requesting that taxes be taken into account must present evidence of what the taxes would be. The court may award either party the right to claim children of the marriage as a dependency exemption, but this is considered as part of the child support calculation and not as part of the property settlement.