On Marital and Nonmarital Assets
My partner, Mike Callahan, and I had another brown bag lunch at my desk today. I enjoy these get-togethers because it gives me a chance to discuss cases and the laws about divorce in Maryland.
“One thing I don’t get”, I said. “If marital assets include everything acquired during the marriage, except for inheritance or gift from a third party, then why isn’t appreciation on a premarital asset considered to be marital. It is acquired during the marriage.”
“No it’s not a new asset,” Mike says. “It is the same asset acquired before the marriage, only now it is worth more. So if you buy Google stock for $100 before the marriage, and it sits in your account during the marriage, and its worth $400 at your divorce, you get to keep it.”
“But isn’t the appreciation acquired during the marriage,” I ask.
Mike pulls down the statute from my book shelf. “Let’s see what it says. Family Law Article 8-201(e)(3) says marital property does not include property: (i) acquired before the marriage; (ii) inherited or gifted from a third party; (iii) excluded by agreement; or (iv) directly traceable to any of these sources.”
“So I guess you can say appreciation, as well as dividends and interest, are directly traceable to the premarital property,” I reply. “But what if I represent your spouse, and you actively manage your brokerage account during the marriage, and you have investment acumen. Now might I claim some of the appreciation was due to your efforts during the marriage, and those efforts are marital property?”
“You might get a judge to see it that way or you might not,” Mike says. “But take this example. “Let’s say my client has a 401k pension plan that was worth $2,000 before the marriage, and that $2,000 is worth $8,000 at divorce. A pension is an asset that can be part marital and part non-marital. The $8,000 is non-marital and belongs to my client. The rest of the plan is marital and can be divided by the court.”
“What if my client owns a business prior to marriage?” I say. “Would that be nonmarital?”
“It depends,” Mike says. “If appreciation during the marriage was due to your client’s efforts or my client’s efforts, then some of the value of the business might be marital property.”
“What about a house owned prior to the marriage,” I ask.
“Well, that might be part marital to the extent that marital funds were used to reduce the mortgage, or repairs and improvements were made with marital funds,” says Mike. “Any other questions?”
“Yeah,” I say. “Are you going to eat those fries?”
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