What It Means To Commingle Assets And How To Avoid Doing It
Most people come into a marriage with at least some property from their single life. But for many couples, the majority of their property is acquired during the period of their marriage – what Louisiana calls the ‘community property regime.’
Louisiana is one of only nine states that characterizes all property acquired after marriage as belonging equally to both spouses. Community property laws apply to partners married in Louisiana as well as couples who are married in other states and move to Louisiana during their marriage.
Community property is really more of an assumption because married persons are free to characterize the ownership of their property however they please – though certain formalities must be followed so that the agreement becomes legally binding on both parties.
What often happens when couples divorce is that there isn’t any prior agreement about separating or dividing their property. And over the years, anything that one spouse or the other acquires gets all kind of mixed together. This can make it difficult to separate out what either spouse might say is separate and does not belong to the community.
The Metairie divorce attorney at the Louisiana family law firm of Betsy Fischer, LLC works with clients to make sure that the assets they want to remain separate do not get commingled with or become part of the marital community property.
Community Property vs. Separate Property in Louisiana
The property owned by married persons domiciled in Louisiana is characterized as either separate or community. Each spouse owns an undivided one-half interest in the community property.
Community property includes property acquired during the marriage:
- Through the effort, skill, or industry of either spouse
- With community things or with community and separate things
- That is donated to both spouses jointly
- That is the natural and civil fruits of community property
- As damages for injury or loss to something belonging to the community
- That is not classified as separate property
Separate property includes the following types of property acquired before and during the marriage:
- Property owned before the marriage
- Property acquired with separate things – or with separate things and just a tiny amount of community things
- Property acquired by one spouse as a gift or inheritance
- Damages awarded to one spouse in an action against the other spouse
- Damages awarded to one spouse regarding their separate property
- Things acquired by one spouse due to voluntary partitioning of the community property
What is Not Separate Property in Louisiana
A mistaken assumption may be made by spouses who own separate property in Louisiana. In some community property states the ‘natural and civil fruits’ of separate property are automatically characterized as separate. For instance, the rent collected from a separate rental property or the interest earned on inherited money would retain its separate character as long as it is kept separate.
But that is not the case in Louisiana. In Louisiana, if the spouse owning the separate property has not reserved the fruits of the separate property through declaration, or there is no matrimonial agreement, the fruits of separate property are community property. This may lead to undesired results when one spouse intends and expects the fruits of separate property to also remain separate.
How Separate Property and Community Property Become Commingled
Commingling of community and separate property means the two types of property have become intermixed so that the separate property loses its character and is presumed to belong to the community. In some cases, it is possible to separate commingled property, but it can be a time-consuming and costly process.
Some examples of how property can become commingled illustrate that it often happens without couples realizing the legal effect of their actions.
- A couple decides to move into the home owned by one spouse before they married and they continue to make the mortgage payments. With each payment made after the couple marries, the community acquires a growing interest in what was separate property.
- During the marriage, one spouse receives a large inheritance and deposits the money into the joint account used by both spouses. The inheritance is now presumed to be community property.
- Each spouse had an individual retirement account that they contributed to before their marriage. After they marry, each payment that is withdrawn from their salaries belongs equally to both spouses giving their community an ownership interest in both retirement accounts.
- One spouse gets a lottery ticket as a birthday gift and wins $50,000 which is used to pay off a large credit card debt that the couple had accumulated during their marriage. Since the payment is made to benefit the community, it is considered community property.
Ways to Prevent Property From Becoming Commingled
Separate property loses its separate character when there is no evidence of a clear intention to keep it separate. It is best to agree ahead of the marriage which property should remain separate and what is to be done about the fruits of separate property and other separate property that may be acquired during the marriage. Care should be taken to keep detailed records that support the intention for separate property to retain its character.
There are two types of documents that spouses can use to formally declare what property will belong to the community and what property will remain separate.
Matrimonial Agreement
Otherwise known as prenuptial or postnuptial agreements, Louisiana allows couples to agree to ‘voluntarily partition the community property’, making the things each spouse acquires their separate property.
Their agreement must be signed, witnessed, notarized, and recorded in the parish where each spouse lives. If the agreement covers real property, it must also be recorded in the parish where the property is located.
To be enforceable during a divorce, a matrimonial agreement must meet all of the requirements of a business contract in Louisiana. It must be freely entered into with complete knowledge and understanding by both partners.
Declaration of Paraphernality
A declaration of paraphernality is less comprehensive than a matrimonial agreement and only addresses the increase in value or income earned from separate property that is owned at the time of the marriage.
To keep the fruits of separate property also separate, one spouse can record a declaration of intention to keep the fruits separate in the parish where the declarant lives after providing a copy to the other spouse. A declaration covering the fruits of immovable property must also be recorded in the parish where the property is located.
If a validly executed matrimonial agreement has declared certain property to belong to one spouse separately, it is not necessary to also execute a declaration of paraphernality regarding the same property to keep its fruits separate.
When the laws of property ownership and marriage are not understood it can lead to a property division in divorce that is not desired. Prior planning and good recording keeping will help assure that couples know how their property will be divided if their marriage should end and enable them to avoid costly and time-consuming litigation.