Separate property, which is not divided between the spouses in a divorce process, is defined in six parts:
We care about whether something is defined as separate property or marital property to know whether it will be divided between us and our spouse in a divorce process. Separate property is off the table; it remains entirely with its owner.
(1) property acquired before marriage;
(2) property acquired by bequest, devise, or descent, or gift from a party other than the spouse;
(3) compensation for personal injuries;
(4) property acquired in exchange for separate property;
(5) the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse;
(6) property described as separate property by written agreement of the parties.
Let’s break those components down, in reverse order.
(6) Anything you define as separate property in a written agreement = separate property, so long as that written agreement is valid and enforceable under Domestic Relations Law, 236B(3). For example, you and your spouse signed a valid prenuptial agreement designating that any business either of you starts during the marriage will remain your separate property. Had you not signed a prenup, businesses you create during the marriage would be considered marital property. But you have the power, with a written agreement like a prenup, to define them as separate property and take them off the table.
(5) The increase in value of separate property = separate property, unless it’s due in part to the contributions/efforts of the non-owner spouse. For example, if you owned an apartment prior to your marriage (separate property), which you sold during the marriage, the net proceeds of that sale would also be separate property. Even though you technically received them during the marriage. NOTE here that what you then choose to do with those proceeds is very significant from a legal perspective. It can turn what was formerly separate property into marital property. We’ll discuss relevant concepts, like commingling and transmutation, in a subsequent post.
(4) Property acquired in exchange for separate property = separate property. Imagine that you own a plot of vacant land prior to the marriage, which is separate property. During the marriage, neither you nor your spouse does a thing to the land. Solely because the real estate market goes up, the value of your land increases. This kind of increase in value, which neither you nor your spouse contributed to making happen, is called “passive appreciation.” It’s separate property.
In contrast, imagine that you own an investment account prior to the marriage. Your spouse is a sophisticated investor and takes over active management of the account, growing its value in leaps and bounds during your marriage. This kind of increase in value is called “active appreciation.” It’s marital property. (The determination of what part of the account in this example is separate property and what part is marital property will be the subject of another post.)
(3) Compensation for personal injuries = separate property. Pretty self-explanatory. Generally, compensation for your own pain and suffering is not marital, though compensation for lost wages is.
(2) Property that’s inherited or received as a gift = separate property At any time, if you receive a gift (from someone other than your spouse) or an inheritance, it’s considered your separate property. It does not matter that you acquired it during the marriage. Note that how you choose to use or spend that inheritance or gift can have a significant impact on how it’s treated in a divorce process. For instance, you receive an annual gift from each of your parents of $15,000, which you use to pay your child’s school tuition. Are you entitled to a credit for using your separate property to cover a marital expense? A complicated question that we’ll address in a subsequent post.
As a reminder, we care about whether something is defined as separate property or marital property to know whether it will be on or off the table to be divided between us and our spouse in a divorce process. Separate property is off the table; it remains entirely with its owner. Marital property is on the table; it is divided equitably between spouses in a divorce.
(1) Property acquired before the marriage = separate property. This complements the definition of marital property, which is focused on when something was acquired. If you acquired an asset (or debt) before you got married, it’s considered separate property. If it then changes in value (e.g., appreciates) during the marriage, you need to understand how and why it appreciated (per  above) to understand whether the appreciation (only) should also be considered separate property, or whether it’s marital property.