The importance of the distinction is that marital property is divided between the spouses in a divorce action. In contrast, separate property is not divisible.
Martial Property versus Separate Property
Marital Property is presumed to be all property acquired during the marriage. This includes pension and other retirement assets and a small business. Whether or not held in joint title or in each spouse's name individually. It also includes the appreciation and accumulated earnings on separate property, unless they are excluded by a written agreement (pre-nuptial or post-nuptial agreement). But it does not include present income. And it does not include intangibles such as college degrees or other education.
Separate property belongs solely to its owner. Separate property is all property: (1) acquired before marriage; (2) property acquired by gift or inheritance; (3) property exchanged for property listed in (1) and (2) above and which can be traced as separate property; (4) property acquired after a decree of legal separation; (5) property excluded by written agreement, either pre-nuptial or post-nuptial; and (6) present earnings. CRS 14-10-113(2).
Converting Separate Property into Marital Property
When separate property is re-titled from one spouse's name into the other spouse's name, or jointly, it is presumed that the property becomes marital property. It is presumed that a gift of the separate property (half of it) from the owner to the other spouse occurs. This is the general rule when the spouse who owns a home prior to marriage adds the new spouse's name after marriage. Even if the addition of the name was for estate planning or refinance purposes.
However, there are exceptions to this general rule. And any conversion of property should be considered by the court in making its division of marital property.
Many people unwittingly make a mistake when they convert separate property into marital property. Be careful.
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