Are premarital assets protected in divorce?

You're thinking about getting divorced and you're concerned about keeping your premarital property. You may have heard rumors that property you brought into the marriage remains yours and that a court won't divide it upon divorce. That's the general rule, but it's subject to many exceptions.

There are ways you can protect your premarital assets so you can keep your separate or premarital property in the event of divorce.

This requires some action on your part and knowing how to keep your separate property truly separate.

What is considered separate property?

When a court reviews the property you and your spouse own, the court will divide the marital property and will generally allow you to keep your separate property. Marital property is most of the real estate and personal property you acquire after you're married. Separate property is:

• Property you brought into the marriage
• Gifts to one spouse from any source
• Inheritances
• Awards from lawsuits
• Property listed as separate property in a prenuptial agreement or in a postnuptial agreement
• Property listed as separate property in a marital settlement agreement, separation agreement, or stipulation of settlement in a divorce

The problem with keeping property before marriage your separate property is that separate property can become marital property in several ways. If a court finds that your separate property has become marital property, your premarital assets are not protected.

How can you keep premarital assets separate?

There are things you can do to ensure that your separate property remains separate.

1. Before you get married, consider getting a prenuptial agreement. In your prenup, you can specify what property you want to remain yours in the event you get divorced.
2. If you're already married, consider getting a postnuptial agreement. Be careful, however, because some states view postnups with suspicion and other states don't enforce them at all. Check with an experienced lawyer before getting a postnup.
3. If you have a business, you can keep it as separate property by a prenup, a postnup, or a buy-sell agreement. You should also make sure your spouse is not your partner or employee.
4. Make sure you do not commingle, or mix, separate property with marital property. For example, if you have your own savings account as a premarital asset, adding your spouse's earnings to your savings account commingles marital property—your spouse's earnings—with your separate property. Your savings account is now considered marital property and a court can divide it upon divorce.
5. Don't let separate property become joint property by transmutation. This legal term simply means that you change the separate property into marital property, leaving your premarital assets unprotected. For example, if you buy things for the marital home or assist with expenses from your separate account, your account has now changed from separate property to marital property, which a court can divide. Likewise, don't deposit marital income into separate accounts. If you're not sure how to keep your property separate, get advice from a family lawyer.

Understanding the difference between active assets and passive assets

Your spouse may actively increase the value of your premarital home by making significant improvements. Likewise, sometimes the value of your property can increase without you doing anything to it. It's important to understand the difference between active assets and passive assets:

Active assets

Items that increase in value because you and your spouse took action, such as improving your home are considered active assets.

If your spouse added money to your separate bank account, that action changed the separate account into a marital account.

Active assets are subject to distribution and can make separate assets become marital assets. In the example where your spouse improved the house, your spouse contributed to the home improvements.

The house appreciated in value since the time of the marriage, which can make the increased value subject to division by the court.

To prevent this from happening, make sure to keep your separate property really separate. Seek legal assistance if you're not sure how to do this.

Passive assets

Assets that increase in value due to circumstances beyond your control are passive assets.

This usually happens when market conditions cause an increase in the value of your house or in your stock portfolio, for example. Passive assets that are separate usually remain your separate property, as does the increase in value.

Consult a divorce lawyer so you know in advance whether the appreciation in value has been active or passive.