by: Robert Moore, Attorney and Research Specialist, OSU Agricultural & Resource Law Program
A well-known statistic is that one-half of all marriages end in divorce. While there is some debate as to the accuracy of this statistic, there is no doubt that many marriages do end in divorce. According to Ohio law, all marital assets are to be divided equitably in the event of a divorce. Equitable does not necessarily mean equal although an equal division of assets between the spouses is often the result. It is important to note that only martial assets are subject to the equitable division between the spouses. Non-marital assets, or separate assets, are retained by the spouse who owns the asset.
Separate assets include the following:
- An inheritance received by a spouse during marriage
- A gift received by a spouse during marriage
- Property acquired by one spouse prior to the date of marriage
- Passive income and appreciation from separate property by one spouse during marriage
The above list would seem to make it an easy exercise to determine what are marital assets and what are separate assets in a divorce. However, like many legal issues, this is often not the case. Determining whether an asset is a marital assets or a separate asset can be complicated. For example, Ohio law also provides that the following is a marital asset:
“… all income and appreciation on separate property, due to the labor, monetary, or in-kind contribution of either or both of the spouses that occurred during the marriage.”
So, it is possible for an asset to be partially a marital asset and partially a separate asset.
Consider the following example:
Andy and Beth are farmers and in the process of divorcing. Shortly after they were married, Beth inherited a 100-acre farm from her grandmother. When she inherited the farm, it was valued at $600,000. A few years after inheriting the farm, $80,000 of drainage tile was installed on the farm paid for by Andy and Beth’s farming operation. The current value of the farm is $1,000,000.
In this example, when Beth initially inherited the farm it was a separate asset. However, the tile that improved the quality and value of the farm was paid for by Andy and Beth’s joint farming operation. Therefore, Andy likely has a valid claim that at least part of the $400,000 increase in value is a marital asset due to the tile installation paid for by money earned during the marriage.
Perhaps Andy further argues that most of the increase in value was due to the fertilizer, tillage and other soil improvements made while Andy and Beth farmed the land. Andy’s argument tries to make the entire $400,000 increase a marital asset. Conversely, Beth argues that the land value increase was not actually earned during marriage but was merely a passive value increase due to market pressure and nothing that Andy did. Beth’s argument tries to make most of the $400,000 increase a separate asset.
As this example illustrates, an asset that is initially a separate asset can become, at least in part, a marital asset. Both Andy and Beth have valid arguments as to their positions. It is not hard to imagine how much time and legal fees could be spent resolving or litigating the issue in a contentious divorce.
People who own significant assets prior to marriage or may inherit assets during the marriage should consider a prenuptial agreement that will clearly identify which assets are to be marital and which assets are to be non-marital. If the couple did not enter into a prenuptial agreement, the spouses should be careful not to taint any assets they wish to keep separate. For farm assets, this may be difficult due to the nature of improving the assets as part of the farming operation. For some non-farm assets, such as financial accounts, it may be easier to maintain the separate status of the assets.