People often sit down for a first consultation and tell me, with real confidence, that separate property will not be an issue in their divorce. They kept everything apart. It is all in their name. Then I ask one question: did your paychecks ever go into that same account? Usually the answer is yes, and that answer changes the conversation.
In New York, separate property is what you owned before the marriage, plus inheritances, gifts from someone other than your spouse, and compensation for personal injuries. Everything acquired during the marriage is presumed to be marital, no matter whose name is on it. If you say an asset is separate, the burden is on you to prove it.
What counts as separate property in New York?
The definition comes from New York Domestic Relations Law Section 236(B)(1)(d). In a high net worth divorce, the assets that most often fall into this category include:
- A condo or co-op in Manhattan, a house upstate, or a home in the Hamptons that you owned on the day you married
- Brokerage accounts, cryptocurrency and stock you held before the marriage
- Deferred compensation and equity awards earned before the marriage, which can include some restricted stock units and stock options to the extent that they vested at the time of marriage
- Inheritances, whether you received them before or during the marriage
- Gifts from a parent or anyone other than your spouse
Property you receive in exchange for separate property can keep its separate character too provided you can trace it back. If you sold a premarital apartment and put every dollar of the proceeds into another one, you may be entitled to a separate property claim.
What about the growth in value during the marriage?
This is where many cases are actually decided. Appreciation on separate property generally stays separate when it is passive, meaning it came from the market or general demand. When the increase came from active efforts during the marriage, such as your spouse’s contributions, renovations paid for with marital money, or your own work building up a premarital business, part of that increase can be treated as marital.
A Hamptons house that simply rose with the market is usually easier to protect. Once marital funds paid for a major renovation, or your spouse oversaw the work, part of the gain may be on the table.
How do you prove separate property in a New York divorce?
Proof is a paper exercise. The court will want to see what the asset was worth on the date of the marriage, where the money came from and where it went afterward. That process is called tracing, and it usually means gathering:
- Account statements from the date of the marriage forward, or as close to it as you can get
- Closing statements and deeds for any real estate
- Wills, estate accountings and distribution letters for inheritances
- Gift letters or bank records showing a transfer from a parent
- Grant and award letters for any equity you held before the marriage
In larger cases I often bring in a forensic accountant to follow the money through years of transfers. Statements from fifteen years ago can be hard to find, so start gathering them early. Every asset you claim as separate also has to appear on your sworn Statement of Net Worth.
How does commingling cost you your separate property?
Commingling is the most common way people lose separate property without realizing it. When you deposit marital earnings into the account that held your premarital savings or an inheritance, the money mixes. Spend from that account, add to it and move it around for a few years, and it can become very hard to say which dollars were yours before the marriage.
Having the account in your name alone does not solve this. A solely titled account can still be commingled, and once the separate funds cannot be traced, they may be treated as marital.
Commingling does not always mean the money is gone for good. With good records and careful work, it is sometimes possible to trace a separate contribution out of a mixed account. It takes more time and expense, and the result depends on what the paper shows.
What happens to restricted stock units granted before the marriage?
Equity compensation is where separate property gets complicated. Say you received a grant of restricted stock units before the wedding, but the units were an incentive to keep working at your firm or tech company, and they vested during the marriage. Even though the grant came first, the units may be partly marital. New York courts often divide these awards using what is called the DeJesus formula, a time-based calculation that I have written about on my blog and in the New York Law Journal.
If you hold equity that straddles your wedding date, have your attorney review the grant documents before you assume any of it is yours alone.
What should you do now?
If you are married and still hold premarital or inherited assets, keep them in their own account, in your name, with nothing marital going in. Keep the statements somewhere safe. If the assets are already mixed, do not try to untangle them on your own before a divorce. Speak with a trusted attorney, and possibly a forensic accountant, about what can still be traced.
A postnuptial agreement can also spell out what stays separate, which takes much of the guesswork out of a future divorce.
I also walk through this in a short video on separate property.
If you are facing a divorce and want to protect what was yours before the marriage, contact an experienced attorney, and take a look at my blog at lisazeiderman.com for more on separate property, tracing and the DeJesus formula.
The information in this article is for general educational purposes only and does not constitute legal advice. Please consult a qualified New York divorce attorney regarding your specific circumstances.