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Upon a couple’s divorce in Georgia, marital property is divided according to Georgia’s law of equitable distribution. Equitable distribution or equitable division of property is an allocation of the assets acquired during the marriage between the divorcing parties, based on the parties' respective equitable interests. Byers v. Caldwell, 273 Ga. 228 (2000). The purpose of equitable division is "to assure that property accumulated during the marriage be fairly distributed between the parties." Campbell v. Campbell, 255 Ga. 461 (1986). Unlike marital property though, a spouse’s separate property is not subject to equitable division or equitable distribution. See O.C.G.A. § 19-3-9. See Payson v. Payson, 274 Ga. 231 (2001). Generally, there are two categories of property that may be considered separate or non-marital property:
1) Premarital Property – Property brought into the marriage by one spouse that was generated by or acquired by that spouse prior to marriage is premarital property and is thus not subject to equitable division upon divorce. Payson v. Payson, 274 Ga. 231 (2001).
2) Inheritance - Property acquired by one spouse during the marriage either by gift, inheritance, bequest or devise is considered a spouse’s separate property, even if that property was acquired during the marriage. Bailey v. Bailey, 250 Ga. 15 (1982). See also Dasher v. Dasher, 283 Ga. 436 (2008).
As mentioned above, upon divorce, each spouse is entitled to the premarital property that he or she owned prior to the marriage. Additionally, if the premarital property brought into the marriage by either spouse appreciates in value during the marriage due to market forces, this appreciation in value is also considered the non-marital or separate property of that spouse. See Bass v. Bass, 264 Ga. 506 (1994). However, if the appreciation in value of the premarital property is the result of the efforts of either spouse or both spouses during the marriage, that appreciation in value will be deemed marital property subject to equitable division. Id. For example:
if Wife owns a $10,000 Money Market account prior to marriage, and the account bears $1,000 of interest during the marriage, the $10,000 plus the interest income remains Wife’s separate property upon divorce.
If during the marriage, $5,000 is added to the Money Market account by the couple, only the initial $10,000 may be deemed separate property. The additional $5,000 will be deemed marital property. In fact, depending on how the account is titled during the marriage, and depending on the extent to which marital property was commingled with Wife’s separate property, the entire account may be deemed marital property upon divorce.
With the above example in mind, if either spouse wishes to maintain his or her premarital property as separate property in the event of divorce, it is important for that spouse to actually keep their premarital separate from any marital property.
However, if a spouse’s premarital property is comingled with marital property, there are ways to parse out that separate property upon divorce. In relatively simple matters where premarital property has been commingled with marital property, such as when marital funds have been deposited into a premarital bank account, a technique known as tracing may be utilized to distinguish marital funds from premarital funds. In more complex matters, a court may apply Georgia’s source of funds rule. The source of funds rule is most commonly applied in matters where one spouse contributes premarital funds to the purchase of a marital home or other marital investment. According to Georgia law, the source of funds rule may be summarized as follows:
“[A] spouse contributing nonmarital property is entitled to an interest in the property in the ratio of the nonmarital investment to the total nonmarital and marital investment in the property. The remaining property is characterized as marital property and its value is subject to equitable distribution. Thus, the spouse who contributed nonmarital funds, and the marital unit that contributed marital funds each receive a proportionate and fair return on their investment.”
Harper v. Harper, 448 A.2d 916 (1982). See also Highsmith v. Highsmith, 289 Ga. 841 (2011).
The source of funds rule involves a complex financial and legal analysis that must be conducted on the property in question. Additionally, Georgia law concerning the division of marital property and the classification of certain property as non-marital property is very intricate and contains several exceptions. Thus, it is advisable to seek the counsel of a lawyer who specializes in Georgia divorce, especially if you have several assets or complex financial holdings.