Divorce affects thousands of couples each year, with challenges that extend far beyond the expected social and familial issues. The complex financial dimensions of a divorce can pose significant hurdles, regardless of the couple’s net worth. One of the most difficult challenges involves compiling the assets and liabilities that comprise the marital estate at the divorce’s outset.

Understanding separate property

In the process of delineating the marital estate, it is common for one or both parties to claim certain assets as separate property. While the distinction between marital and separate assets has significant financial implications, it is essential to consult with a financial expert. Such professionals are crucial for analyzing these distinctions' financial ramifications without making legal judgments, ensuring a fair understanding and approach to asset division. This focus ensures that all parties have the financial clarity needed to navigate these discussions effectively.

Generally, separate property assets are categorized as:

• Pre-marital assets, gifts, and inheritances;
• Post-marital assets, gifts, and inheritances; and
• Assets acquired during the marriage from pre-marital assets, gifts, or inheritances.

Though the categorization appears straightforward, substantiating separate property claims requires clear evidence from the claiming party.

Examples of separate property that may be claimed during a divorce

For instance, if one spouse enters the marriage with 100% ownership interest in a pizzeria and a divorce happens several years later, the argument can be made that the titled spouse should be entitled to a separate property credit for the pizzeria's value at the start of the marriage. To analyze this separate property issue, a business appraiser would have to prepare a business valuation at both the marriage’s beginning and the divorce’s commencement.

Another scenario might involve a spouse receiving a $100,000 cash gift during the marriage. This gift's classification as separate property could be complicated by how it was managed within the marriage, such as being transferred into a joint account or used for joint expenses, which would potentially commingle it with marital assets.

If involved in a divorce that could involve claims of separate property, it is imperative to enlist the help of a professional to claim, substantiate, and fairly evaluate these assets.

At Citrin Cooperman, our Forensic and Litigation Advisory Services Practice is made up of experienced and skilled financial analysts that can assist with these types of matters. With expertise in business valuation, forensic accounting, and litigation support, our team aims to simplify the complexities surrounding matrimonial litigation. Whether establishing separate property credits or challenging overstated claims, our insight can help. To learn more, please contact Nick Backmann nbackmann@citrincooperman.com or your Citrin Cooperman advisor.