When a couple seeks a divorce in Florida, their assets and debts are divided according to the principles ofequitable distribution. That means each spouse keeps their separate property, and marital property is divided in a manner the court considers fair, but not necessarily equally. So, you should have the right to keep all of your separate property: these consist of the assets you acquired before the marriage, gifts and inheritances you received during the marriage, and any assets designated as separate in a pre-nuptial agreement. However, your spouse may attempt to lay claim to your separate property, asserting it became marital property through a process known as commingling.
Commingling occurs when you mix separate property with marital assets and/or treat the separate asset as part of the marital estate. Commingling is most easily accomplished with liquid assets, like cash, moved from one account to another, or treated in a manner that gives the other spouse equal access. But commingling can also occur with businesses or real estate.
Take, for example, this case of a husband and wife. The wife uses her cash from before the marriage to start an in-home business. After she gets the business started, she needs additional capital, so she takes a “loan” from the household savings, which are entirely the product of her husband’s earnings. The business takes off, and becomes very lucrative. At the time of the divorce, the wife has still made no payments on the “loan.” Can the husband claim an ownership interest in the wife’s business? If so, how much? Would it be sufficient at this point if the wife repaid the loan with interest? Does it make any difference that she operated out of the home, while the husband was the sole earner paying the mortgage alone?
How might a Florida court decide whether the business was the wife’s separate property or a marital asset? There are three different legal theories the court could apply that might lead to very different results:
- Strict transmutation — This theory holds that once a nonmarital asset is mixed with marital assets, it becomes marital property. The husband could argue that once the wife took marital funds, her business became a marital asset, and it should be subject to equitable distribution.
- Tracing — This theory follows the money. The wife would be liable for restoring the amount of money she “borrowed” to the marital estate, plus whatever interest it might have earned had it stayed in the account. This approach does not adequately address whether the husband is entitled to equity in the company based on the growth the loan enabled.
- Intent of the parties — This approach considers what was in the mind of the couple at the time the commingling occurred. This is tricky because they might not have been in agreement on particulars; may have taken much for granted, being that they were married at the time; and in any case, don’t have a written contract memorializing their intent. The wife might have trouble proving she took a loan for her business, since she never attempted to repay it. A court could find the husband was only willing to take the risk of loaning/giving his wife’s business money from their savings because he anticipated sharing in its success down the road. That would give him a strong case for part ownership, especially if he was the wife’s sole support while she was getting the business off the ground.
Issues of commingling often arise for couples with complex finances, especially for two-career couples who entered the marriage with substantial assets. It’s important to get reliable advice from an attorney who has successfully handled high-net-worth divorces.
For reliable advice on property division in a Florida divorce, consult our dedicated Tampa Bay-area family law attorneys at the Law Offices of K. Dean Kantaras, P.A.