Preserving Separate Property Between Separation and Trial Dates
Why is it important?
The time period between the filing for divorce and the permanent orders hearing is often six months to several years. If a party to a divorce has a material amount of separate property at the date the divorce is filed, it is especially important to preserve this separate property until the permanent orders hearing. Separate property belonging to a spouse will be set aside by the court for that spouse. Marital property will be divided "equitably" by the court.
If separate property is inadvertently depleted or transformed into marital property during this period, the party owning the separate property will be adversely affected. For example, if $300,000 in separate property is used to pay marital expenses during this period, instead of using $300,000 of available marital property, a 50-50 split of marital property would yield a $150,000 property settlement for each spouse. If the $300,000 in available marital property had been used to pay the marital expenses, there would be no marital property left to split and $300,000 of separate property would be awarded to the spouse owning the separate property.
How is separate property depleted?
Can separate property depletion be avoided?
Yes. There are several techniques to avoid the depletion of separate property during this period.
I have found that clients that do not properly plan to preserve separate property at the initial filing for divorce are frequently shocked when they learn that a material amount of separate property has been depleted in a relatively short period of time. They are also often extremely unhappy with their attorneys and accounting experts for not properly advising them at the outset. Therefore, whenever separate property is an issue, attorneys and accounting experts need to properly advise their clients on how to preserve separate property at the outset of a divorce action.