In researching how to plan for your financial future, you might have stumbled upon the term “commingling” and wondered what it means. If you live in New York, are married, or are considering getting married, commingling is an important concept to understand. And, if prenuptial agreements aren’t already on your list of smart options to consider…add it to your list! But, what is commingling? And, how could a prenup protect me from this? Continue reading to learn about New York’s commingling laws and how prenups can save your financial future.
How is property classified in New York?
Before jumping into the complexities of commingling, we should first explore how New York classifies property. In a New York divorce, property is classified as either separate property or marital property. The way property is characterized is extremely important in New York, as it determines which assets and debt the parties split upon dissolution of marriage and which assets and debt are excluded from division upon divorce.
Separate Property
Separate property belongs solely to one person. It includes assets acquired and debt incurred prior to marriage, inheritance, gifts specifically given to one party during marriage, and compensation for personal injuries, excluding losses that affected the marital estate. Separate property is not up for distribution upon divorce. Therefore, if you were to get a divorce, you would not have to divide or share any of your separate property.
Marital Property
Marital property, on the other hand, includes all assets and debts acquired during marriage. Assets that are classified as marital property belong to both spouses, regardless of who owns them. This can include real estate, investment accounts, appreciation on separate property during marriage, personal property, investments, retirement funds, business interests, artwork and collectibles, debt obligations, and intellectual property. However, assets acquired with separate property are generally classified as separate property if the source funds have clearly remained separate and apart from the marital estate.
When deciding whether property is separate or marital, courts will consider the way you treated your assets during marriage. They look to the parties’ intentions and the way they treated assets to discern a property’s proper classification. It’s important to understand that your separate property could unintentionally mix with marital property, making it susceptible to distribution during divorce. This brings us to commingling!
What is commingling?
Commingling happens when assets that legally belong to one spouse (separate property) get mixed with assets acquired during a marriage (marital property). Once assets are mixed, it can become nearly impossible for a court in the future to ascertain which assets were originally separate. When this happens, the original separate assets are deemed to have inextricably mixed with marital assets. Those originally separate assets are now classified as marital property and are therefore subject to division upon a divorce.
As mentioned above, when deciding whether to classify property as marital or separate, New York courts attempt to decipher the intent of the parties (Moskowitz v. Moskowitz (2014). A party claiming that property is separate must provide clear and convincing evidence that they did not intend to make separate property marital property (Belilos v. Rivera (2018)). This is where the term “transmutation” enters the room.
Transmutation occurs when the party’s intention in mixing their separate funds with marital funds was to turn the funds into marital property. The difference between the two terms is that commingling is the act of transferring assets or funds into a marital asset, while transmutation focuses on the intent of the party when he or she made the transfer.
The 2018 case of Belilos v. Rivera, highlights the emphasis New York courts place on the parties’ intentions. In this case, the New York Appellate Division found that when the wife deposited her $150,000 inheritance into a joint bank account she shared with her husband, she only did so because she did not have a separate bank account in her name at that time. In his testimony, her husband corroborated her version of events, stating that he intended to “make things right” regarding her inheritance. The court found that there was clear and convincing evidence that the commingling was for purposes of convenience and that the wife’s intention was not to make her inheritance marital property. The fact that her husband recognized the separate character of her inheritance despite it being mixed with their joint bank account helped the court have a clear idea of the parties’ intentions and understanding at the time of commingling (Belilos v. Rivera (2018)).
Common ways commingling can occur
When you choose to formally merge your life with someone else’s through marriage, you naturally merge everything from expenses to experiences. Commingling is a common side effect of fully living a married life. There are certain scenarios where commingling happens frequently, and by knowing these risks in advance, you can better protect yourself in the future.
Joint bank accounts
Sharing a bank account can be efficient and can make sharing life and expenses with someone significantly easier. Just be aware that if you transfer your separate funds into an account you share with your spouse, it will likely become marital property. So transfer and share your money to your heart’s content…just know that your money will become part of the marital estate.
Investing in property
You might want to invest your separate money into a home where you and your spouse will live together. That’s money well spent! But understand that using your funds to invest in or improve upon marital property will likely transmute the separate funds you used into marital funds. You should not expect to be reimbursed for that money from the proceeds of the sale of this home unless you can prove with clear and convincing evidence that your intention when commingling was not to make a gift to the marital estate. This can be very hard to prove.
Additionally, if you were hoping this home was your separate property and you’re hoping it will remain your separate property in a future divorce…that’s very unlikely. Treating this home as a marital home and the probable contributions your spouse made to this home during the marriage, financial or otherwise, would likely transmute this home into marital property.
Adding your spouse to a title or as a beneficiary
If you add a spouse to a title, deed, or if you add them as a beneficiary on an account, a court will view this as a presumption of a gift to your spouse. This means they will see your action as an intention to make this property or account a marital asset. After adding your spouse, it’s very likely this property will be vulnerable to distribution in a divorce.
How does New York distribute property in a divorce?
With all this talk of splitting your assets with your partner, you’re probably wondering how New York divides and distributes property during a divorce! States divide marital property through either the laws of equitable distribution or the laws of community property.
Nine states abide by community property laws which means that all property acquired during marriage is presumed to be marital property and is therefore distributed equally upon divorce. Generally this means the property is split 50/50. New York is not one of those nine states. Courts in New York distribute property under the laws of equitable distribution. This means that in a divorce, courts divide property as it deems fair and equitable. This does not necessarily mean a 50/50 split.
According to Section 236(B)(1)(c) of Domestic Relations Law, New York courts define marital property broadly and separate property narrowly. Meaning that when a spouse mixes individually owned funds into marital accounts or puts their separate money into a marital asset, courts will oftentimes view all mixed assets as marital property (DRL § 236(B)(1)(c)). So, if you were to get a divorce, a court would first determine which property is marital property, then it would distribute that property in a way it believes is fair and equitable, regardless of who technically owned the property.
Can a prenup protect me from commingling?
Not completely, but it can definitely help. A common misconception is that a prenup acts like a magical forcefield that keeps everything you owned prior to marriage permanently separate. The truth is, although a prenup can include strong language to define what’s considered separate property, like a home you bought before the wedding, it can’t stop certain things from becoming legally murky if you treat those assets like shared property during marriage.
For example, if you designate your premarital investment account as separate property in your prenup, but then use funds from that account to renovate the home you share with your spouse, your actions can blur the line between what’s yours and what’s included in the marital estate. A court could step in and find that it looks like you intended to share your funds with your wife regardless of what your prenup says.
Although prenups are not a complete protective shield from commingling, they can include clear language stating your intent to keep specific assets separate and can lay out how you both agree to treat specific assets during the marriage. Your agreement can even spell out how to avoid commingling, like keeping certain accounts separate or tracking contributions to shared purchases. So, while it’s not footproof, because your actions during marriage can sometimes override your agreement, prenups are a smart first line of defense.
What are the requirements for a valid prenup in New York?
A prenup must be valid and enforceable if it’s going to protect you and your finances! To ensure that your prenup is upheld in the future, make sure it meets the following requirements:
- The agreement must be in writing.
- The terms must not violate New York state law.
- The agreement must not be severely unfair (unconscionable)
- The agreement must be signed voluntarily by both parties.
- The agreement must be acknowledged by both parties in the form as is required for filing a deed in the state of New York.
- Waivers of alimony must include alimony calculations, including the incomes of both parties
- Both parties must make full disclosure of all financial assets and debts.
If your agreement abides by the requirements listed above, it should be upheld and you and your assets should be protected from commingling during your marriage.
The bottom line on commingling in New York…
Commingling is when you mix your separate property with marital property to the extent that it’s difficult to ascertain the distinct separate classification of the property. When deciding whether separate property transmuted (changed) into marital property, a court looks at the intention of the party when commingling. New York tends to narrowly define separate property and broadly define marital property and is therefore likely to find that separate property has become part of the marital estate once commingled.
Remember the good news, though! You and your partner can enter into a prenuptial agreement that can possibly reduce the effects of commingling. Remember though, your actions towards assets during marriage can cause a court to view your separate property as becoming marital property. So, be careful how you treat your assets.
Contact a family law attorney in your area who is experienced in drafting prenups or visit HelloPrenup to draft a personalized agreement that abides by New York’s complex laws. You just learned so much about New York property laws! Now put this knowledge to use by securing a prenup before saying “I do!” If you’re already married, research the laws regarding postnuptial agreements to see if this contract might be a good fit for you and your spouse. Good luck to you in planning for your future!
Chelsie Keller is an accomplished attorney with broad experience in Estate Planning, Civil and Criminal Litigation.
Chelsie is very passionate about helping couples and families navigate the waters of life’s most important issues. She provides a confident, compassionate, and steady hand, helping guide clients throughout every step of the planning process, whether it’s estate planning or embarking on a new marital journey.
Chelsie’s goal at the end of the day is for her client’s to walk away feeling comfortable and confident with their decision.
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