Many conflicts over property division in a divorce center on whether certain assets should be classified as marital or separate property. At a glance, it might seem that these designations are fairly simple. Most assets accumulated while a couple was wed are part of the divisible martial estate unless a valid agreement between the parties says otherwise. Conversely, property that is acquired by one party before or after the marriage is considered separate and stays with that individual.
In actuality, drawing a line between separate and marital property can be much more complicated than you think. Commingling of assets and the use of individual holdings to fund in-marriage purchases can trigger disputes that defy a simple resolution. The New York Appellate Division, Fourth Department addressed multiple issues related to property distribution in Aggarwal v. Aggarwal.
One issue in this case involved real estate in Vermont that was acquired when the couple was married. Though the trial court held that this asset was subject to division among the parties, the Appellate Division reversed that holding based on the fact that Mr. Aggarwal had bought the parcel using proceeds from the sale of his separate property.
Another point of contention was the treatment of Mr. Aggarwal’s retirement account, which he had started before marrying his wife. Though he continued to contribute to the IRA after being wed, that did not mean the entire balance would be included within the equitable distribution process. Rather, the panel held that a retirement account is marital property only to the extent of contributions made during the marriage. Mr. Aggarwal’s premarital IRA balance of approximately $94,000 and any natural investment growth from that figure was classified as separate property.
The decision also includes a cautionary note about withdrawals. Although Mr. Aggarwal prevailed on classification, the court affirmed the award to Mrs. Aggarwal of one-half of funds he withdrew from the IRA at the outset of the divorce proceeding. This demonstrates the difficulty of maintaining separate status for assets that are used in transactions.
If you want to shield premarital funds from an IRA, 401(k) or other type of account from the marital estate, meticulous tracing matters. Preserve historical statements so the premarital baseline and passive growth can be identified. Treat withdrawals during litigation with care and be prepared to prove that the funds went toward legitimate marital uses.
Bryan L. Salamone & Associates, P.C. offers personalized divorce counsel to clients throughout Nassau and Suffolk counties, including assistance with property division disputes. For a consultation, please call 631-388-6009 or contact us online.