What Happens if You Sell Separately Owned Property After Marriage?

In Minnesota, property acquired by either spouse prior to marriage or received as a gift or inheritance during the marriage is considered separate, non-marital property.

However, selling or disposing of separate property during the marriage can complicate matters when it comes to equitable division in divorce.

At Martine Law, our experienced Minneapolis divorce attorneys can help you understand how transactions involving separate property work under Minnesota law and how they may impact divorce proceedings.

How Selling Separate Property Can Transform It Into Marital Property

Assets that a spouse purchases or acquires separately, outside of their marriage, are considered non-marital property. This includes items purchased before the marriage or received as a gift or inheritance just to that spouse during the marriage.

While these types of non-marital properties typically belong solely to the owning spouse, there are scenarios in which these separate assets essentially transform into marital assets belonging to both partners.

Some of the most common ways that separate property can transform into marital property include:

• Commingling separate and marital property – If proceeds from the sale of separate property are mixed with marital funds, such as depositing them into a joint bank account, the separate funds take on a marital character. Tracing the funds back to their original separate property source becomes difficult.
• Using the proceeds to improve marital assets – If one spouse sells their separate property and uses the funds to renovate the marital home or pay down the mortgage, those separate funds are now invested in marital property. This gives the other spouse an equitable interest.
  These kinds of transactions can create confusion around the separate and marital property for spouses who sell individual assets during the marriage in Minnesota. Proper tracking and accounting of separate funds can help avoid unintended transmutation.

Impact on Property Division in Divorce

Anything you bring into the marriage – like a home, car, or other items you owned previously – typically remains your separate personal property if sold later, even years after saying “I do.” The same goes for basic market value growth on those assets – that money from passive appreciation is usually still solely yours too.

However, determining exact ownership gets tricky if any active growth occurs on those non-marital properties over the course of the marriage – like if marital funds contributed directly to repairs, renovations, or restoration that boosted the asset’s worth before selling it.

Essentially, any enhanced value stemming from joint money or labor spent improving the original separate property can make part of the proceeds shared property. The spouse who didn’t originally own it may have a claim to some portion of the total appreciated value in a divorce.

An Example

For example, take an antique car owned prior to marriage worth $25K. It later sells for $75K years after the wedding. If nothing changes except collectibility, the $50K profit goes to the original owner.

But if restoration used $10K of marital money, the argument becomes that $10K of the increased value stems from both spouses’ efforts – meaning the appreciation subject to division could be $20K at divorce.

It’s best to get clear advice beforehand when dealing with non-marital property conversions to protect your rights and avoid issues down the road.

At Martine Law, our team thoroughly investigates assets and property transactions as we build a strategy focused on our client’s most equitable outcome in divorce.

Tracing Separate Property Proceeds

To protect the separate nature of property sold during marriage, spouses need to trace and document the proceeds carefully. This includes:

• Keeping proceeds from the sale in separate accounts titled in the selling spouse’s name only
• Maintaining records tracking transfers and expenditures of the separate funds
• Avoiding commingling or joint titling of assets purchased with separate proceeds
• Recording how proceeds may have passively appreciated if invested or held in interest-bearing accounts

Proper tracing provides crucial evidence to establish whether proceeds have retained their separate property status in the event of divorce. With the help of forensic accountants, divorce attorneys can often trace even commingled funds back to their original separate property source when sufficient documentation exists.

Working with Experienced Minneapolis Divorce Attorneys

Navigating changes to separate property during marriage and understanding the potential effects on divorce can be complex. The skilled Minneapolis divorce lawyers at Martine Law have the knowledge and skills to help guide you through this process.

We work diligently to classify both separate and marital property, tracing complex transactions and developing strategic arguments regarding equitable distribution that align with our client’s goals.

Whether you are seeking to protect separate property interests or ensure fair division of commingled assets, we can advise you on smart moves during the divorce process. Contact our Minneapolis family law attorneys today to get started on a case strategy focused on protecting what’s yours.