Filing for divorce in Maryland and anticipating the division of marital property can be stressful. When a married couple gets divorced in Maryland, all property is classified either as marital or separate property. Under Maryland law, divorce courts in the state use a theory of equitable distribution to divide marital property in a manner that is equitable to both spouses. Usually, separate property is not divisible and will not be distributed in a divorce. Separate property typically includes property acquired before the date of the marriage, as well as inheritances or separate gifts acquired by only one spouse after the date of marriage. Property expressly excluded from distribution, or property that has been classified as separate through a prenuptial agreement will not be divided – if the prenuptial agreement is enforceable.
However, there are some exceptions. Most often, these exceptions concern the commingling of marital and separate property. For instance, a spouse might use separate assets to contribute to marital property. As an example, a spouse might use separate assets to pay off a marital debt or to put a down payment on a marital home. One situation we want to discuss today is the appreciation of separate property. When separate property appreciates, it may become a marital asset.
When Separate Property Appreciates During the Marriage and is Classified as Marital Property
In general, if separate property appreciates during the marriage without any actions by either spouse, the appreciated amount of separate property will remain separate property. For example, if one a spouse invested money prior to the marriage and left the funds in that investment without making any changes during the marriage, any amount the asset appreciated (or depreciated) may ultimately be classified as marital property. If separate property appreciates during the marriage as a result of actions taken during the marriage, the amount of appreciation may become classified as marital property and subject to division.
When might the appreciation of separate property become marital property? Imagine Party A purchased a vacation property prior to meeting Party B (the other spouse). Imagine Party A paid off the mortgage on the vacation home prior to marrying Party B and owned the vacation property outright. On the surface, when Party A and Party B get divorced, the vacation property looks like it will be classified as separate property. However, Party B might bring up the fact the property appreciated in value. If the property appreciated in value, the court may classify the amount of the appreciated value as marital property and will make that amount divisible between the parties.
Passive and Active Appreciation in Value
The question of whether a passive appreciation in value — in which neither party took any steps to lead to the appreciation in value — is separate or marital property may be up for discussion in a divorce proceeding. The appreciated value may remain as separate property. Yet active appreciation in value will nearly always be classified as marital property. For example, take the above scenario in which Party A purchased a vacation property prior to the marriage and owned it throughout the marriage. Now, let’s say Party B spent a significant amount of time making repairs to the vacation property, invested $20,000 in the property and it appreciated by nearly $200,000. That active appreciation in value due to Party B’s efforts will be classified as marital property and will be subject to division.
It is important to remember that just as the active appreciation in value of separate property during a marriage will be classified as a marital asset and subject to distribution, the active depreciation in value of separate property during the marriage can also be classified as marital debt and subject to division.
Learn More from a Maryland Divorce Attorney
If you have questions about property division in Maryland or the division of separate property that appreciated in value during the marriage, a Maryland divorce lawyer at our firm can help. Contact the Law Offices of Sandra Guzman-Salvado for more information.