This is the final installment in our three-part discussion of separate property in divorce. We previously covered common categories of marital and separate property. This week, we consider how one spouse’s separate property might be “invaded” in divorce.
Invasion of Separate Property
In general, each party will receive their own separate property, without any part going to the other party, and the Court will then seek to make an equitable division of all that remains in the marital estate. But there are two important exceptions wherein the Court may “invade” one spouse’s separate property and divide it up anyway: upon a showing of “substantial need,” or “contribution.”
The “substantial need” exception derives from Michigan statute MCL 552.23(1), which provides that separate property may be invaded if, after division of the marital assets “the estate and effects awarded to either party are insufficient for the suitable support and maintenance of either party….” As interpreted by Michigan courts, this means that invasion is allowed when one party demonstrates additional need, such that invading one party’s separate property is necessary to ensure that the other party has sufficient resources to support themselves.
The “contribution” exception derives from Michigan statute MCL 552.401, which provides that the court may invade separate property when the other spouse “contributed to the acquisition, improvement, or accumulation of the property.” Thus, “[w]hen one significantly assists in the acquisition or growth of a spouse’s separate asset, the court may consider the contribution as having a distinct value deserving of compensation.” A common example of this is a home purchased prior to the marriage but which becomes the marital home after the couple marries. The longer the parties live in the home, the more marital the home becomes. There is no definitive rule as to timing but the theory is that the non-purchasing spouse is contributing to mortgage reduction and upkeep and maintenance.
Another example is closely held company stock that increases in value as a result of both parties’ efforts during in the marriage. In a recent case, the trial court found that certain private stock the husband acquired before marriage was the husband’s separate property and that his efforts working for the company during the marriage contributed to the increase in the value of the stock. The court noted that while the husband worked long hours for the company (as much as seven days a week and 12-hour days), the wife also worked for the company and was fully responsible for the children while the husband worked long hours. The trial court ruled (and the Court of Appeals affirmed) that the wife was entitled to 1/3 of the value of the stock because she contributed to its appreciation not only as an employee of the company, but also by managing “the household and childcare for the couple’s children.”
Separating Expectations from Reality
Anyone contemplating divorce should resist the urge to rely on their gut instinct for determining what property may or may not be subject to division. While the law in this area is relatively clear and often well-reasoned, it may not coincide exactly with what seems fair on a surface level. Things like separate bank accounts or each spouse’s respective earnings may seem like they should be separate, but they are not. In addition, the application of the law will always depend on a judge’s view of the facts: how extensively were funds commingled? Is there substantial need for invasion? How significant was one spouse’s contribution to the other’s separate property? What did the parties really intend to keep separate? Understanding the analysis courts go through is certainly necessary for arguing your case to a judge, but it is also helpful in negotiating a property settlement outside of court. By knowing your legal rights, you know when it makes sense to concede and when it makes sense to push for a better deal.