One of the things that gets decided in a divorce is how to “equitably distribute” the parties’ marital property. The first step in this process is identifying and then classifying all of the parties’ property. Separate property includes anything that was acquired before the marriage or by gift or inheritance. The court has no power to divide separate property and it will be unaffected by the divorce.
Marital property includes anything purchased with income earned during the marriage. Dealing with purely marital and purely separate property is easy. When the parties mingle separate and marital property, however, properly dividing the resulting “mixed property” in a divorce can be difficult.
For example, if one party purchase a house before the marriage and keeps it in their name only throughout the marriage but pays the mortgage with the salary they earn during the marriage, the court has to decide how much of the equity in the house is marital. The code section with the instructions on how to do this is Virginia Code Section 20-107.3. Because the property was purchased before the marriage and has remained in the name of only one of the spouses, all of the mortgage payments made with marital earnings are “transmuted” into separate property. The other spouse can then “retrace” them by proving exactly how much marital money went into the property. Once the ratio of marital and separate contributions is established, any passive appreciation of the property due to a general rise in real estate prices will most likely be divided according to the same ratio.
Suppose the wife comes into the marriage with the house she received in her last divorce. On the date of marriage, the property was worth $250,000 and had a $150,000 mortgage against it. During 20 years of marriage, the mortgage is paid down to $50,000 and the value of the property has gone up by $50,000. The now $300,000 property has $250,000 in equity. The separate and marital property contributions are equal at $100,000 each. The ratio is 50/50 and the $50,000 passive appreciation will be most likely held to be half marital and half separate as well. Of the $250,000 in equity, $125,000 will belong to the wife because of her separate property contribution and separate property share of the appreciation. That $125,000 cannot be divided by the court. The other $125,000 in equity will be marital and the court has the authority to divide it after applying the factors listed in the code. The most common division is, of course, 50/50. Assuming that equal division of the appreciation, the wife’s interest in the property will be all of the $125,000 separate property portion and half of the $125,000 marital portion or $62,500 for a total of $187,500. The remaining $62,500 in equity will be in the husband’s column. The wife will have to pay him that amount or accept a smaller slice of some other asset to offset it.
