Sticky Non-marital Claim Issues
Non-marital property is property acquired as a gift, bequest, devise, or an inheritance or property acquired prior to the marriage or acquired in exchange for or is the increase in value of non-marital property. The spouse making a non-marital claim to property has the burden of proving by a preponderance of evidence that the property is non-marital, the question of “tracing” these claims is a primary focus.
The easy tracing cases are those in which the asset acquired by gift or inheritance or which existed prior to the marriage has been kept separate from marital property. It is more common for the non-marital asset to have been co-mingled with marital property either as a down payment on real estate, pre-existing real estate with marital contributions, or investment or retirement funds which are rolled over or to which marital funds are added. In these situations, the task of tracing the non-marital asset can be difficult and time consuming. If the non-marital property is to maintain its non-marital status and has been co-mingled with marital property, the non-marital property must be “readily traceable.” If the asset existed at the time of marriage, the first step is to obtain a statement showing the value of that asset at the time of marriage. This would be, for investment and retirement funds, a statement with the balance closest to the date of marriage. If the asset is real estate, proof of market value and mortgage balance at the time of marriage is the starting point. With purchases of assets made during the marriage using non-marital funds, the spouse needs to retrieve a document showing payment made from a non-marital asset to the purchased asset. For example, if the party has a trust fund or segregated investment fund with non-marital assets, a copy of a check or bank statement verifying transfer of funds can be used to trace the non-marital funds to the purchased asset.
If the spouse making the non-marital claim does not have the documentation, the financial institution in which the funds were maintained should be contacted to obtain the proof. A frequent problem with financial institutions changing hands and ownership and particularly in cases involving transactions which occurred years ago, the institution may claim to have no documentation from that period. If it can be determined where the parties’ marital assets were deposited at that time, and those institutions do provide statements, evidence that no withdrawals were made at the time of purchase from a martial fund could be used. Because oral testimony can be sufficient to trace a non-marital asset, the spouse’s statement may also be used as proof of the tracing.
In cases where the potential claims are not substantial enough to warrant time consuming tracing or expert evaluation fees, or when both clients have premarital claims and neither wants to spend the time hunting down documents or paying for fees for evaluation of the documents, they may agree to use a streamlined approach. For example, the parties could agree on the amount contributed or existing at the time of marriage and further agree on an investment rate of return or appreciation in value. In some cases, clients may simply agree to use the initial non-marital investment without going through the calculations of appreciation or depreciation of that investment.