In a recent opinion, the Colorado Court of Appeals reviewed two questions relating to the treatment of separate real property in a divorce. They also made one new determination in the treatment of accrued vacation and sick time as property to be divided.
How the Divorce Court Treats the Re-Invested Proceeds of a Home Purchased Prior to Marriage
In the Case of Marriage of Cardona and Castro, the wife had sold a condominium, during the marriage, that she purchased before the marriage. She used the proceeds of the sale ($100,000.00) in the purchase of a marital home. The Trial Court had set aside funds to reimburse her for her initial contribution of separate property towards the purchase of the home. These funds were not considered part of the division of the marital estate.
The Court of Appeals corrected this error on the part of the Trial Court by pointing out that in Colorado, there is a presumption of a gift to the marriage when separate funds are used to purchase a marital asset; in this case the marital home. So, if you sell the home you owned prior to the marriage and put the equity into another home during the marriage, that entire amount becomes marital property and is subject to division upon divorce. The only way to overcome this presumption of a gift to the marriage is to show, through evidence, that your intention was for the separate equity to remain separate property. For instance, you could have a post-nuptial agreement that states the financial contribution of separate property to the marital home is intended to remain separate property. The evidence needs to be stronger than retrospectively stating that this was your intention.
The bottom line is that if you want to keep the proceeds of a sale of separate property separate, you need avoid co-mingling it with marital assets. Keep the proceeds in a separate account with only your name on them, or, if you put them into a marital asset like another home, execute a post-nuptial agreement stating your intent for those proceeds to remain separate.
When Marital Funds are Used to Pay down the Debt on Separate Property
Let's say that you own a home that you purchased before you were married. That home is your separate property and it should not be part of the division of marital assets. However, if that home has increased in value during the marriage, that increase in value is marital and will be considered in the division of marital assets.
In Marriage of Cardona and Castro, the Court of Appeals took this one step further. Beyond the increase in value, there is also another possible marital component to a separate property home. Take the situation where there is no increase in the value to the home during a marriage. Lets say that you are in a recession and the value of the home has stayed stable in the last 5 years. However, during those same 5 marital years, the owner of the home (married) has been paying down the mortgage so that there is now more equity in the home because the debt has been reduced during the marriage. In Marriage of Cardona and Castro, the Appellate Court found that the increase in equity in the property based on the use of marital funds to pay down the dept is marital property. In other words, if the debt has been reduced by 20,000.00 during the marriage, even if the value of the property has not increased, the equity has and that 20,000.00 in increased equity is marital property.
Is Accrued Vacation and Sick time a Marital Asset?
The last separate vs. marital property issue addressed in Marriage of Cardona and Castro involves accrued vacation and sick leave time. This is an issue of first impression in Colorado. The question is: Is accrued leave time a marital asset to be divided on dissolution of a marriage? In Cardona, the Trial Court held that the husband's accrued leave time was valued at $23,232.00 and required him to pay $11,615.00 of that value to his wife as part of the division of marital assets. The Appellate Court disagreed stating that accrued leave time is NOT a marital asset and not divisible on dissolution of marriage. The rational was that the value is contingent upon using it or not.
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