Separate Property Dangers of Commingling
During the course of a marriage, especially one of long duration, it is not uncommon for couples to have joint accounts. As the marriage progresses, it becomes second nature for people to place money in these joint marital accounts. As life progresses, people run into different sums of money, for example, inheritances or personal injury awards. When people run into this money, like everything else, they place the money into their joint account. The problem arises when the couple decides to divorce. At that point, the question becomes: is my spouse entitled to my inheritance? What about the money that I received as a result of the car accident I was involved in? The answer is maybe, as the couple found out in Musacchio v. Musacchio.
In Musacchio, the parties were married in 1990 and had three children. During their marriage the husband received $132,000.00 as a result of a personal injury settlement. This award was earned before the marriage. After he was married, he opened up a savings account and placed this money in a savings account, in his name only. In addition, he had an IRA account which was funded with money before he was married. In the divorce, the wife sought equitable distribution of the personal injury award.
As a starting point, the Court will first classify all property as either separate or marital property. In line with Domestic Relations Law §236(B), money received as a result of a personal injury award is considered separate property. If you are claiming assets in the marriage is separate property it your burden to show that the money is separate property. At first glance, the husband’s personal injury money is separate property. However, here is where the husband transformed what was presumptively separate property to marital property. First, he opened a savings account during the marriage. The account is now marital property. While the decision in this case was not explicit, the Court held that this property was marital property. Here is what probably happened as gleaned from a footnote in the case. First, Husband took his separate property and placed it in an account which was opened during the marriage. He should have kept it in whatever account the money was being held in. Second, the problem most people run into, he commingled the money with marital funds. What probably happened is that his Wife either had access to the account or he start placing marital funds into the account and using this account to pay marital bills. Once he did that, he converted the separate property to marital property. It was shown at trial that he was paying marital bills from this account and that the balance in the account was more than the original deposit. At trial, he was not able to explain this increase in the account. Ultimately, the Court held that the Husband failed to carry his burden showing that the money was martial.
Regarding the IRA, again, the Court first determines whether the property is separate or marital. Here, the IRA was created before the marriage. Unlike the personal injury award, Husband did not move the money around, nor did he fund his IRA after his marriage began. Thus, the Court correctly held that this was separate property, and so the Wife was not entitled to equitable distribution of this IRA.
Practically speaking, once you either get an inheritance or a personal injury award, you have a decision where to place what is essentially separate property. If you place the money in a marital account, you may have commingled it and if you decide to divorce, your spouse can claim your inheritance, personal injury award, etc., as marital property. Thus, the safest thing to do with separate property you acquire during the marriage is to place in a separate account. More importantly, do not use this money for marital bills or let your spouse have access to the account. If you do, you risk the Court making a determination that your spouse is now entitled to part of your separate property.