“I bought my home a few years prior to marriage. We are divorcing in Minnesota after eight years, and only my name is on the title. Does that effect the equity claim?”
I get asked by people who are involved in a divorce, whether the assets they owned before their marriage can be claimed by their spouse as ‘marital property’ or whether the assets are ‘untouchable’ because they are ‘non-marital’. To complicate matters even further, what if the asset increased in value during the marriage? Does that increase in value become marital property? And to complicate matters even more, what if the increase in value resulted from contributions or efforts made by the spouse? Can your spouse them make a claim that the asset is now completely marital property because he/she helped increase the value of the asset?
Marital vs. Non-Marital
Thankfully, Minnesota law is not that complicated in explaining the difference between a marital asset (which a divorce Court has authority to divide between spouses) and a non-marital asset (which a Court generally does not have the authority to divide). In Minnesota, a divorce court is required by law to assume that everything that a married person owns is also owned by that person’s spouse. This means that the burden of proving that the asset is ‘non-marital’ is totally on the spouse who wants the court to consider the asset to be ‘non-marital’. Here are some examples of things that a court will consider to be untouchable or ‘non-marital’
- Property gifted from a third party to one but not the other spouse.
- Property acquired before marriage.
- Property acquired by a spouse after the divorcing spouses have been to court and identified to the court all of the marital assets which they wish to divide.
- Property that is considered untouchable by a valid prenuptial agreement.
- Property that is acquired in exchange for any of the items listed above.
—Minn. Stat. Sec. 518.003 subd. 3(b)
So, even though you might have a car (or a house) that is titled solely in your name, if you are married and getting divorced, a Minnesota court will assume that your house and car are also the property of your spouse UNLESS you can prove that one of the exceptions provided above applies. But, what about the asset increasing in value because your spouse contributed to the increase? What if your spouse helped you pay down the mortgage on your house so that you have more equity than you did before getting married? What if your spouse helped pay for a deck or a new roof on the house that increased its value?
Non-Marital Value Increases as Total Value Increases
There are some assets that we own, such as a house, that are usually tied down with an encumbrance or lien, such as a home mortgage. The question then becomes, how do we measure an increase in value of a non-marital share (the equity you have in the home at the time of marriage) while still measuring any increase in value that occurred because of the marriage (your and your spouse’s contributions to the mortgage payments)? Does it complicate matters because the divorce court has to consider the mortgage too when determining the non-marital and marital values? The answer is ‘no’, not really.
The Minnesota Supreme Court in Schmitz v. Schmitz—309 N.W.2d 748 (Minn. 1981) applied a formula similar to one used by the Kansas Supreme Court, in figuring out how to give credit to an increase in value of a non-marital interest in the house, while still acknowledging that there was a marital interest in the house, because of the mortgage being paid down by the parties during the marriage.
Here is what the Court did. It considered the non-marital equity in the house, and the percentage increase in the total market value of the house during the marriage. The Court then increased the non-marital equity in proportion to the home’s increase in value. The Court then, subtracted from the home’s total value, the amount of the mortgage, and, the non-marital equity. What was left over was the marital value which the court could then divide between the parties.
A House Divided
As an illustration, consider that a couple is going through a divorce, and they own a home which the wife purchased before marriage. The couple wants to know how much of the house, if any, is marital, and how much of it is non-marital. Say the house was worth $100,000 at the time of the marriage, and, there was a $90,000 mortgage against it at the time of marriage. At the time of the divorce, the home has doubled in value, and, the mortgage balance is now down to $30,000. According to Schmitz we should be determine the non-marital interest as follows:
|Time of Marriage||Time of Divorce|
|Value of the House||$100,000||$200,000|
The moral of the story is, the non-marital equity increases according to the increase in the asset’s (in this case the home’s market value). If there are questions about a non-marital asset or interest that you may have and that you wish to ensure that it is not included in an award to your spouse, or, if you are concerned that your spouse is telling you that you have no interest in an asset because it is non-marital, please feel free to contact me today at 651-647-0087 or reach out via our online contact form for a free consultation. I look forward to hearing from you.