Ways to Protect Your Separate Property

If you brought separate property into your marriage, make sure you know how to protect those separate assets in a divorce! In this episode of Divorce Team Radio Todd Orston, Partner at the Divorce and Family Law firm of Meriwether &Tharp, LLC, offers tips on how to protect separate and non-marital assets, and to NOT do things that could damage or destroy the separate nature of those assets.

Todd Orston:

Welcome everyone to Divorce Team Radio, sponsored by the Divorce and Family Law Firm of Meriwether and Tharp. I'm your host Todd Orston, and here you're going to learn about divorce, family law and from time to time, even tips on how to save your marriage if it's in the middle of a crisis. You want to read more about us, check us out online at atlantadivorceteam.com.

All right, let's get started. So today I want to talk about something that we deal with all the time and it's separate property. So you've obviously heard of property. Many of you own property, whether its personal property, real property, assets like financial accounts, cash, stock, things like that. So, that's property, but taking it to that next level. What about separate property? Well, in order to understand what separate property is, let's start with and begin with an understanding of just property and property division in Georgia.

And again, we're talking about property division, as it relates to Georgia. And some states also follow similar rules, but at any time you're listening to the show and you're trying to think of things in terms of how it's going to impact you. If you're not in Georgia, contact an attorney in your area. But this is still going to help because it's still going to give you an idea, hopefully a good, strong, idea of some of the definitions, some of the things you need to be thinking about when dealing with property division in your case.

So beginning with an understanding of property division in Georgia, we are what's called an equitable division of property state. Doesn't necessarily mean equal, the court has discretion. It just means what's fair under the circumstances of your particular matter. Well, when you start looking at property, you have to look at different types of property, of course, stock, real estate, all of that.

But what about the difference between what we call marital property and separate or non-marital property? Marital is typically defined as anything you earned or obtained during the marriage, except for anything obtained through gift or inheritance. And separate property is anything you brought into the marriage and anything you acquired during the marriage through gift or inheritance.

So why is it important to even determine whether it is marital or separate property? Well, because Georgia has a law on the books and many, if not most, states do, that offer a different level of protection for separate property. Meaning very simply stated, if you can prove you had it and it's separate property, let's say you brought it into the marriage, and you can show you still have that exact property, then in the context of a divorce, you should get to keep your separate property.

Georgia does a good job of identifying and protecting non-marital separate property. But there are absolutely things that you can do or not do, that can affect or even destroy the separate nature of an asset. So you have to be careful. Why is it important? Because you may be thinking in terms of "When I got married, I had X, Y, Z. I had this bank account, I had the stock, I had a house." But you may have done things that impacted your separate claim. If you do, or don't do, certain things, it can change that separate asset into a marital asset.

Any inheritance gifts, assets, you brought into the marriage with you are now up for grabs you. They don't enjoy that same level of protection anymore. So OCGA, the official code of Georgia annotated, code section 19-3-9, each spouse's separate property basically reads, "The separate property of each spouse shall remain the separate property of that spouse, except as provided in chapters five and six of this title and except as otherwise provided by law."

So, as I was saying, it offers good protection, if you don't mess things up. And we're going to go into how your actions or in-actions can mess things up. How they can destroy that separate nature of an asset, interfere with your ability to claim that an asset is separate property.

There are two primary ways that you can do that. Number one, co-mingling of assets. We're going to go into that in more detail, but co-mingling of assets very, very basically stated, mixing marital with non-marital, you're mingling them. You're co-mingling the two different types. Doing that can affect, it can actually destroy the separate nature of the asset.

The second way is non-economic contributions to an asset. So there are things you can do with an existing piece of separate property through your active management of the asset in question. And if you engage in that behavior, then all of a sudden what you believed was 100% your separate property, now, all of a sudden there is a marital component. And sometimes you can avoid it, sometimes you can't. A non-economic contribution, for instance, a business. Again, I'll go into more detail, but you start a business and on day one, when you open up that business, it has zero value. Every day you're going in, you're working, you're building value. By the time you sell or rather by the time you divorce, all of a sudden you have the next Amazon. Well, clearly the asset grew in value. It grew due to your work, your effort. So it's not that you just took money and poured it into the asset, it's that you grew the value.

So those two ways, those two things that you do can absolutely impact a separate asset. And I have seen people dramatically impacted. And by that, I mean, I've seen them come in, they inherited money, they brought money in they had a career. I've seen situations where they had a career, but they were retired. They enter into a marriage and then they do things that, unfortunately, didn't protect those separate assets. And next thing you know, X number of years later, they're going through a divorce. And a lot of it's up for grabs. Meaning it's going to be considered a marital asset, simply because you didn't do things necessary to protect.

That's what we're going to go into. In the next segment I'm going to go into commingling. We're going to do a deeper dive on commingling of assets. What to do, what not to do, all of that. Then non-economic contributions, I'll go into more detail and explain that. And then I'm going to go into tips, things that you need to be thinking about to protect these assets so that you don't find yourself in that unfortunate situation where you didn't protect the asset and the other party is now making claims and you don't have a valid defense.

So we're going to go into all those things and understand that a show like this, like I was saying before, a show like this, my only goal is to educate. Is to let you know... Basically, it's what I tell people that I talk to almost on a daily basis, because if you don't have this knowledge, meaning if you don't have the information necessary to protect what you've built, that's when bad things happen, that's when the frustration kicks in. And I've dealt with some very frustrated people, because it's not... And I will explain it or add another layer here. It's a much different conversation.

But let's say you have done something that damages or destroys the separate nature of an asset, in Georgia, where an equitable division of property state, what's fair and reasonable. You can potentially argue that, "Well, it's not separate, but maybe I should get it." But that is a much weaker argument. You don't want to be put in that situation. So when we come back, I'm going to jump into commingling of assets.

I just wanted to let you know that if you ever wanted to listen to the show live, you can listen at 1:00 AM on Monday mornings on WSB. So you can always check us out there as well. Better than counting sheep, I guess. Right?

Speaker 2:

That's right.

Todd Orston:

You can turn on the show and we'll help you fall asleep.

Speaker 2:

There you go.

Todd Orston:

I'll talk very softly.

Welcome back everyone to Divorce Team Radio, a show sponsored by the Divorce and Family Law Firm of Meriwether and Tharp, and I'm your host Todd Orston. And if you want to read more about us, you can check us out online at atlantadivorceteam.com. If you want to read a transcript of this show or go back and listen to it again, you can find it at divorceteamradio.com. And also I wanted to let you know, if you want to listen to the show live, of course, on WSB at 1:00 AM Monday mornings, you can catch the show there, as well.

So today we're doing a deeper dive into the definition of separate property. Pitfalls that unfortunately affect too many people where an asset that they believed was safe, believed would not be able to, or should be considered in the context of division of property, in a divorce case. And all of a sudden they are finding out that something they did or didn't do is impacting their ability to keep it safe, to keep it out of consideration. The other side is coming in making claims and legally they may have the ability. They may win the argument.

So we're talking about ways that separate property, non-marital property, can suddenly become marital. And the first one we're going to go into, I talked about commingling. I talked about non-economic contributions.

Let's talk about commingling. Sounds fun, right? "What do you do this weekend?" "Ah, did some commingling." It's not fun, especially if you're the owner of that separate asset. So let's start with a definition. What do I mean by commingling? It's the mixing of marital and separate property. It's a very basic beginning explanation, but really that's what you're doing. You're mingling, you are mixing the marital with the non-marital.

Can happen in cash accounts, it can happen in investment accounts, it can happen with real property. Some things it's easy to control or prevent. For instance, bank accounts should be easier. If you have a separate bank account you brought into the marriage, it has money in it. If you want to keep it safe, arguably, it shouldn't be that hard.

Keep it separate. Some things it's not as easy. For instance, real property. Here's an example I give people. Think of commingling in terms of a piggy bank. And actually, when I was thinking about this, I was thinking about the piggy bank one of my grandfathers gave me. Let's pretend you have a hundred coins in that piggy bank. You get married, you have that piggy bank, you have a hundred coins in it. So now fast forward, 5 years, 10 years, it doesn't matter. And you still have that piggy bank and you're looking and you see that same piggy bank sitting there. Well, if you can prove, not just say, but if you can prove that piggy bank, let's say, was in a safety deposit box, you never touched it, you didn't take coins out. You didn't put coins in.

Then you can argue, if you can prove that to the court, you can argue, successfully, that the pennies in that piggy bank are the exact same pennies that were there when you got married. They're the exact ones you brought into the marriage. Now let's say you don't put it into a safe place. Let's say that beautiful piggy bank is sitting wherever, on your dresser, kitchen table. It's out there, public view. And let's say over the years, you take a couple pennies out, you put some pennies in. You take some pennies out, you replace those pennies. You keep doing that again and again, and again. Then understand, fast forward now the 5, 10 years. Understand that when asked the question, "Are they the same pennies that were there when you got married that you brought into the marriage?" You cannot say, "Yes." You can't.

Because what you did was every time you put pennies in, they were probably marital pennies. So you took marital money, put it into the pot, into the piggy bank, with the non-marital pennies. And if I take that piggy bank, empty it out. Let's even say there's a hundred pennies still. And I look at you and I say, "Tell me which ones are the marital ones, which ones are the separate ones?" You're not going to be able to answer that because you've mixed them all together.

You've now commingled the marital and the separate. Which means, unfortunately, you're not going to be able to prove it's separate, which means the court's going to consider it marital. So we're going to go into, in the last segment, we're going to go into things to think about to try and protect these assets. But the bottom line is that's what separate property is. So it's important you know what is important, is to ultimately identify the separate asset, don't mingle it with the marital.

If you can prove it's your separate property, prove you didn't touch it, spend it, whatever, mix-it, mingle it, it should be yours in a divorce. You do the opposite, you mix it with the marital property. And unfortunately you've now, potentially, if not probably, destroyed that separate nature. Financial accounts are similar to the piggy bank example I give. All right, I mean a piggy bank, it's a bank account. You have an account, you have a hundred dollars, a thousand dollars, a hundred thousand dollars. If you're constantly taking money out, but then replacing the money, you're now mixing marital separate, which means you could destroy the separate nature of the asset.

If you're only taking money out, that's a different problem. But if you're spending separate property, but not mixing, then marital assets back in, then whatever's left should be your separate property. But if you put money in, you keep depositing, that's when people get into trouble. Now, real property is different. And sometimes that is more difficult. And you may not be able to avoid the commingling issue.

For instance, if the house isn't paid off, you bring a paid for a house into the marriage, done. That's great, because there is no mortgage, you're not paying it down using marital money. But a mortgage requires mortgage payments. Mortgage payments are often paid with the cash earned during the marriage. Cash earned during the marriage is a marital asset. Therefore, every time you're making a payment to pay down the mortgage, you're using marital money, which means you're building into that asset a marital interest.

In Georgia, we have something called a Thomas Calculation. Which stated by the court, it's basically this, "A spouse contributing non-marital properties entitled to an interest in the property, in the ratio of non-marital interest, to the total non-marital and marital investment in the property." Basically... I'm not going to read the entire thing, but basically you can have an asset that has both a marital component and a non-marital component. It gets more complex, but we can run the numbers. We can look at basically what the value was as of the date of marriage. Look at the contribution since then, and then come up with a ratio that's going to determine what, maritally speaking, can be claimed and what is protected.

It gets a lot more complex. But as you can see, co-mingling, isn't fun. And I've seen, again, too many people run into real problems and have assets that should have been off the table, unfortunately, are just on the table. They are part of the conversation. Claims are being made. And counsel is basically rejecting the claim. And I've been on both sides of that argument where someone has said to me, "Hey, my client should have this asset. It's their separate property." And you know what I say, "Prove it." I don't say it rudely, but prove it.

"Don't just say it's your separate property or your client's separate property. Show me where the evidence is. If you can prove it's separate property, great. Then by law, my client has no claim and we will back off. But if all you're doing is saying it's separate property, leave it alone. And you have no evidence, I can tell you right now, you're going to lose that argument in court." And we're going to go into more of that in that last segment when I give you some tips on how to avoid some of these pitfalls.

All right, when we come back, we're going to talk about non-economic contributions.

Hey everyone, you're listening to our podcast, but you have alternatives, you have choices. You can listen to us live also at 1:00 AM on Monday morning on WSB.

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Todd Orston:

Welcome back everyone, I'm Todd. This is Divorce Team Radio, a show sponsored by the Divorce and Family Law Firm of Meriwether and Tharp. If you want to read more about us, check us out online at atlantadivorceteam.com. And if you want to read a transcript of the show or other shows, listen to this show again, or other shows again, find them at divorceteamradio.com.

Today we're talking about separate property. Divorce and property issues go hand in hand. So obviously it is important to know about some of the nuances of the law relating to equitable division of property. And one, not just component, but big component, is understanding that definition of what is marital property and what is separate property? That's what we're going into today. Last segment we talked about commingling, it's not a good thing. It's not a fun thing. It's a thing. And it's a thing that if you don't understand it, if you don't protect the asset in question, then unfortunately it could destroy the separate nature of the asset.

That's what we're talking about. And now I'm going to talk about non-economic contributions. Most people are going to think in terms of separate property, marital property, and ways you can damage the separate nature. Most people are going to think about commingling. But there is another equally important thing you need to be thinking about, and that is non-economic contributions.

And we have case law here, Stokes V Stokes. It's a 1980 case. Common examples are going to be working on, let's say a premarital business or work on stock accounts. Georgia law recognizes that basically a non-economic contribution to the marriage, can and should be reflected in terms of equitable division of property. Title doesn't mean anything. We tell people that all the time, "Oh, it's my house. I brought it into the marriage. The mortgage is my name, title is my name." The problem is that title means nothing. The court is still going to look and consider some of the other things that we've already talked about, but still going to consider how was the value in that property built? How is it created?

You came into the marriage and the house was paid off. Boom, it's your property. Even if there is an argument that there's a marital component, it's going to be small. But what about some of these assets where you actually, actively work on the growth and management of the asset and your actions directly impact the value. That is absolutely a concern. For instance, we talked about the house. And if you come in, first of all, and you think, "I brought it into the marriage, it's mine." And you don't think about the other things we've talked about, how during the marriage you build certain value.

Well, you are unfortunately setting yourself up for some level of failure. Meaning, unfortunately, you're not truly protecting the asset. So if during the marriage you have put all this backbreaking work into the house, that's great. But the bottom line is, let's say you've done those things and you have actively put forth effort and made improvements to the asset and then you sell it and it becomes clear that those efforts, made during the marriage, increase the value you may have, unfortunately, done all of that work and it built in a marital interest.

A really common example is stock accounts. There's a difference between a stock account managed by some company where you just put the stock in there, it's going up in value, whatever, down in value. Unfortunately, you're not really doing anything to actively manage it as opposed to what I'm going to call the day trader. Someone who daily, weekly, whatever, is actively managing that account, that asset, is going in selling this stock, buying another stock, selling that asset, buying another asset. All in the hopes that those decisions will increase the overall value of the account in question. That day trading, because you actively worked to grow the value what you're doing is you're now creating a marital value, that the other party can lay claim to.

So it's the key test is active versus passive appreciation of value. Same thing goes for a business. If Jeff Bezos, Amazon, if he started and it was a small valueless company and he gets married and 10, 20 years, whatever, later, he is the proud owner of Amazon. Do you really think that he's going to be able to say "No, no, no, hold on one second. I brought it into the marriage and I understand it's a multi, multi billion dollar company now, but it's mine. I brought it in." That doesn't fly, it didn't fly.

So the court's going to look and is going to say, "No, hold on one second. You brought it in and there was some value. So maybe that value can be protected. Whether it was a dollar, or a million dollars, or a billion dollars. If during the marriage, he worked and turned that billion dollar company into a $20 billion company, $50 billion company, whatever it is. Then that growth constitutes a marital asset, which is subject to division."

And as many of us who watched that case play out and saw some of the... They reached an agreement but when we heard, to whatever degree of accuracy there was, his wife, obviously, she walked away with sizable assets. And I don't care if she didn't spend a day working at Amazon. I don't care if she was driving trucks. I don't care if she forklifts. It doesn't matter. She may have not spent one minute on Amazon company property doing any amount of Amazon work.

Clearly it was a marital asset, or at least there was a large component that was marital. And she walked away with a lot of value. Again, it goes back to that the fact is you need to think in terms of, not just what asset exists, but have you done things to increase the value? Or if you're thinking proactively, you can't just think, "Oh, I have an account. It's my separate property." You need to be thinking in terms of, "Is that value going to grow? How's it going to grow? Am I working on the value? Am I working on appreciating that value on growing the asset?" These are things most people don't think about.

And if you don't, that's when the problems happen. And it can also go both ways. If you have an asset, let's say you have a stock account and you let your spouse actively manage... Let's say you don't put a dime more money into a stock account, but your new spouse, that's what they do. And you're like, "Yeah, here you go. Make it rain." And next thing you know, a week, a month, a year, whatever, later, that $50,000 account is now worth 300,000 because of the active day trading that was done by your spouse. Well, guess what? You're not going to be able to sit there and say, "Yeah, all that value, that's mine. It's my separate asset."

You have a company and basically you are, whether you're allowing the other spouse to work in the company or not, but you allow them to work in the company, obviously, you're now creating an issue that they can claim. "Hey, I helped grow the value." And I've seen that time and again. "I did the books. I did this, I did that." So even if it didn't increase in value dramatically, the fact that they did all that work to try and grow the company, that could create some problems.

So when we come back, I want to solve some problems. And we're going to talk about that. And I'm going to talk about things you can do or not do to try and protect the separate nature of an asset.

Speaker 2:

I just wanted to let you know that if you ever wanted to listen to the show live, you can listen at 1:00 AM on Monday mornings on WSB, so you can always check us out there, as well.

Todd Orston:

Well, better than counting sheep, I guess, right?

Speaker 2:

That's right.

Todd Orston:

You can turn on the show and we'll help you fall asleep.

Speaker 2:

There you go.

Todd Orston:

I'll talk very softly.

Welcome back everyone. Okay. I'm Todd Orston. This is Divorce Team Radio, sponsored by Meriwether and Tharp. And here you're going to learn about divorce family law, time to time tips on how to save your marriage, but you already know all that.

So today we're talking about separate property. Incredibly important it's an issue you can't ignore because I have seen too many times people not give it the attention it needs. And I don't mean in the context of a divorce. I'm talking about how you manage the assets in question, during the marriage. And by not thinking about that separate nature, not thinking of the potential of a divorce and whether or not the other party can make a claim against the asset. If you don't think about those things, I have seen people, unfortunately, lose a lot simply because they didn't think, they didn't strategize. They didn't take steps to protect.

So let's talk now about three strategies to protect separate assets. Is there any absolute, mistake proof ability to protect them? No, but there are definitely ways that you can do things in a way to hopefully maximize the chance that anything you brought in and still have in the event of a divorce, will be protected. And it could be a dollar, it could be hundreds and hundreds of thousands of dollars.

So let's talk about the first one, maintain records. I know it sounds simple, or some people might even say, "Well, that sounds onerous, burdensome. I don't want to maintain and have to think about all the records relating to, let's say, an account." But I can tell you right now, records equal evidence. Evidence is what you need to prove your case. If you don't have the records to prove whatever it is you're trying to prove, you're not going to prove it.

Judges will look at you and say, "It's not about what you say, it's what can you prove." You have... "Council, or party. I understand what you're saying, but you have failed to prove X, Y, Z." You need to think in terms of evidence. Great evidence when it comes to this is documents. So you want to be able to document the existence of the asset. For instance, a bank account. Records from the time you got married showing the value, records that show receipt and ownership, records regarding the use of the account, because I've seen other parties go, "Well, hold on. We used that account." "She used that account." "He used the account and commingled." Having records to show, "I never touched it." There is no evidence of any commingling. "I never deposited a dollar." And also you have to think in terms of... Quite often, divorces don't just happen quickly, meaning immediately after you get married. I've seen parties who are married 10 years, 15, 20, 25 plus years.

And I don't need to tell you, but 25 years on, duplicating some of the records that will help you to make a good argument to protect what you believe is a separate asset, likely no longer exist. Even if the bank itself exists, they may not have records that old. Or, as is more often the case, the bank in question has changed hands, it's sold, it's merged, it's... whatever. And the records are gone. And if the records are gone, they're gone. So if you go into a marriage and you know you're entering into the marriage with assets you would want to protect, make sure you're maintaining those records, put them somewhere safe.

In today's day and age it's so easy, scan them, have them electronically saved, in addition to hard files, but at the very least electronically saved somewhere in multiple locations so that you know, if unfortunately, you ever have to go through the divorce process, you have what it takes. You have the evidence necessary to prove that the other party should not be able to make any claim.

All right, then there's asset segregation, number two. Do not mix marital and separate assets. To be honest with you don't even mix separate and separate, marital and marital, don't care, do whatever you want. But in terms of separate property, do not mix them. Commingling is a real thing, it's a real problem. It has created major headaches for a lot of people, a lot of heartache. Keep your separate assets, separate. Keep in mind that definition of commingling, it's that mixing of the marital and separate.

If you have stock, keep it in an account separate from other stock. For instance, marital accounts that you are increasing the value of, you're depositing more money in to invest more. Cash, it's the same thing. And I've had people say to me, "Come on. I need this money and so I put it all together, but why shouldn't it be considered?" Well, because you commingled it. I understand you needed the money, I understand that maybe keeping it separate, never touching it is an impossibility, but do your best. Because if you don't, even if you didn't use all of that money...

For instance, you could have $50,000 in an account. And it becomes clear that over the years, "Yeah. You've put money into the account." But five years on, you still have 50,000. "So judge, I didn't touch the separate part. I only touched what I deposited and that was marital." But unfortunately you threw it all into that same piggy bank, you mixed it all up. And just because there's now currently the same value doesn't mean that when you put a marital dollar in, you didn't take one of the separate dollars out.

So you are, unfortunately, very potentially damaging the separate nature of what's in the account. Don't do it. I know there's more paperwork in terms of maintaining separate accounts and all that. But believe me, you and any attorney you may need, are going to be happy you did.

So then there's, don't spend on marital expenses unless you have to, and if you do just understand, once the money's gone, it's gone. Unless you're building a hard asset, you can track and trace. You buy a sofa that sofas still exists, but if you spend on trips and things of that nature, just remember you can't just replenish it with marital money. It's commingling. So do your best to keep that money protected. And if you can't, I know it might be an uncomfortable conversation, but the alternative, you may want to go to your spouse before you spend and say, "Hey, I need something in writing so that we agree it's almost like a loan and it's going to be replenished and it will be considered my separate property."

And you're going to have to look at the jurisdiction you're in, talk to an attorney because if you don't do it right, it's not worth the paper it's written on. That brings me to the... Actually it's four tips. Consider a post or a prenup. We've talked about that, prenuptial agreements, postnuptial agreements. It's a great tool that is commonly used to define property rights in the event of a divorce. You come in with an asset, you can then define that asset as your separate property. You can even define if you do certain things that under Georgia law could impact its identity as a separate asset, you could even say well, but it won't. "We agree that if I do X, Y, Z, it'll still be my separate property."

So pre and postnuptial agreements are incredibly powerful tools. Yes, maybe some uncomfortable conversations, right? "Hey, can't wait for our wedding, but can you sign here, here and here?" I get it. But you know what? It benefits everybody. Both parties might have the assets that want to be protected.

Look, it took a lot for you to save and build these assets, the separate assets, or for your family member that maybe you inherited from. And therefore it should remain your separate property. But if you're not careful, all of the work you did is wasted or at least... Well, I guess you can say it's wasted because it's not your separate property anymore and it's going to be divided. All right. Hopefully this helps. Thanks for listening.