What Is Non-Marital Property and Why Should I Care?
Non-marital property consists of (a) the property you owned prior to your marriage; (b) the property you acquired during your marriage by inheritance or gift from third parties (not your spouse); and (c) any property directly traceable to any of the above sources. See Md. Code Ann. Family Law § 8-201(e)(3). In a divorce action, each party gets to keep their non-marital property, provided they are able to prove that such property was directly acquired via one of the three above-listed sources. This is where the proverbial plot thickens, particularly in long-term marriages.
How many people keep records verifying their acquisition of jewelry or a baseball card collection that they purchased 20 or more years ago? How many people keep evidence confirming their receipt of funds from a deceased relative’s estate or life insurance policy? How many people maintain statements dating back to the date of marriage for their existing 401(k) plans? In my experience, most do not. And most banks only keep records dating back seven years, further complicating the proof recovery problem.
The rabbit hole grows deeper once parties use non-marital property to acquire other assets. Take, for example, the purchase of a new family home with a down payment from pre-marital funds. Or the use of inherited funds to start a family business. Or the funding of a joint savings account with a gift from mom and dad and a bonus from employment. In Maryland, to prove that a new asset was acquired with non-marital property, either in whole or in part, one must directly trace the acquisition of the asset to its non-marital source.
What is direct tracing? The concept is best described in the negative. Think of money like kernels of corn. If I have 10,000 non-marital kernels in a container, and I add 5 marital kernels, and then I take out 100 kernels, how do I know if the kernels I’ve removed are marital or non-marital. According to Maryland law, I don’t. My inability to conclusively and directly prove that the 100 kernels came from the non-marital kernels will not only disrupt my ability to trace the 100 kernels back to a non-marital source, it may also disrupt my ability to prove how much of the remaining 9,905 kernels are non-marital.
I know what you’re thinking -- if I cannot prove that the 100 removed kernels were from the non-marital portion, won’t the court count at least 95% of those kernels as non-marital? After all, the whole container only had 5 marital kernels total. While that thinking is certainly intuitive, and mathematically irrefutable, the case of Melrod v. Melrod, 83 Md. App. 180 (1990), states that proportionate tracing is not direct tracing. Accordingly, the non-marital property loses its non-marital status and all of the property is treated as marital. This is referred to as co-mingling.
The moral of this story? If you don’t take steps to ensure that your non-marital property is either preserved or traceable, you won’t be permitted to keep your pre-marital property at the time of divorce. This could be a reason to seek a prenuptial or postnuptial agreement, or to meet with a trained family law professional to discuss methods for keeping your non-marital property separate or traceable.
Erik Arena is a Partner at Dragga, Hannon & Wills, LLP with twelve years’ experience in family law and divorce matters.