The first step in determining how to divide property in a divorce is to figure out what property will be divided in the first place. As we know from a previous post, only marital property is divided between spouses in a divorce, while separate property remains with its titled owner.
Your income is marital property. Yes, that includes your bonus.
Thus, our first step in dividing property in a divorce is to distinguish separate property from marital property. This is where the legal definitions of marital property and separate property come in handy.
Both marital property and separate property are defined in Domestic Relations Law, Section 236B, Paragraph 1 (“Definitions”). This post will delve into the definition of marital property, and we’ll look more closely at the definition of separate property in a subsequent post.
In New York, marital property is defined as: “all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held… [Marital property] shall not include separate property….”
The key component of the definition above is timing. When was an asset acquired? Was it acquired during the marriage? Was it acquired before you signed a separation agreement or started an action in court to end your marriage? If so, we presume it’s marital property.
In fact, the only way that an asset that meets the above timing tests can not be marital property is if it also meets the definition of separate property, which we’ll cover in a separate post. (For our purposes here, let’s assume that the assets mentioned below do not meet any definition of separate property.)
Who acquired the asset does not matter. Imagine, for example, that you’re the higher earner in your marriage. Your income goes into your personal bank accounts, and you make a series of sophisticated private equity investments with that money. It is never mixed with your spouse’s income. In fact, your spouse would never have been approved to invest on his or her own. All of that is true, and—your private equity investments are marital property.
Who holds title to the asset does not matter. Imagine, for example, that you and your spouse have (verbally) agreed that you’ll use a large portion of your bonus one year to buy a piece of property upstate. Based on your mutual understanding, you put the deed to that property into your sole name, intentionally leaving your spouse’s name off. Your spouse never visits the property and takes no interest in it. You each treat the property as if it’s yours alone. All of that can be true, and still—your upstate home is marital property.
What about your income during the marriage? You worked for it. You earned it. Let’s test it out. Acquired during the marriage? Check. Acquired prior to signing a separation agreement or filing for divorce? Check. Let’s assume it’s not defined elsewhere as separate property. Result: your income is marital property. Yes, that includes your bonus.
What about your 401k? You worked for it. You earned it. It’s held in an account in your sole name (title), which you can’t legally include your spouse’s name on. Acquired during the marriage? Check. Acquired prior to signing a separation agreement or filing for divorce? Check. Let’s assume it’s not defined elsewhere as separate property. Result: your 401k is marital property.
Remember: a divorcing couple is always free to divide their property—marital OR separate—in any way they choose. They can elect to share separate property with each other and/or not divide a marital asset between them. However, if they cannot agree and must look to a judge to decide, only their marital property (as defined above) will be divided. Their separate property, which we define in another post, will remain with its titled owner.