Broadly speaking, when spouses divorce, each individual retains whatever property has been classified as “separate,” and both spouses either negotiate or litigate the division of “marital” or “shared” property.
Most of the time, property owned by individuals before marriage, property protected via prenuptial or postnuptial agreements and property that is either gifted to or inherited by one spouse alone during the marriage is considered separate property. However, there are circumstances under which ordinarily separate property can be converted – intentionally or unintentionally – into marital property.
Comingling and transmutation
When spouses who own separate property fail to maintain that property apart from their marital assets that separate property may become commingled. Once commingled – unless otherwise specified in a prenuptial or postnuptial agreement – that property may be reclassified as marital property. The process of changing the nature of property from separate to shared is known as transmutation.
The loss of individual ownership over property is rarely consequential during a marriage, as spouses tend to share their resources quite readily. However, transmutation of property can result in significant consequences during the divorce process.
Practical implications: An illustrative example
Imagine that the parents of an adult child worked incredibly hard all their lives, in part so that they could leave behind a legacy for that child. When the parents suddenly pass away in an accident, the sizeable value of their entire estate passes to that child alone. The adult child, who is very much in love with their spouse and trusts them completely, uses the inheritance to buy a home that they share and to fund a business that they co-own.
It is later discovered that the adult child’s spouse has been hiding a secret second family in another city. When they file for divorce so that they can wed their unmarried significant other and parent their kids that they share with this person, the adult child is compelled to share half of the business and half of the marital home’s value with their cheating spouse. Even though these assets were purchased with their inheritance, by comingling this separate properly so significantly, it has all been transmuted into marital property that must now be divided unless the cheating spouse agrees to forego their interest in these assets.
All in all, transmutation is a consequential legal concept that too few people know about until after it is too late. Those who have questions about addressing this risk in a prenuptial or postnuptial agreement – as well as those who may need to manage this reality during divorce – may benefit from seeking personalized legal guidance accordingly.
