All across America many homes hitting the market are selling in bidding wars. With inventory at record lows and home prices at record highs, some may argue that the United States housing market is on a surge. Combine this with low mortgage rates and millennials reaching their prime home-buying years, there is no wonder the housing market is on fire.
Another popular trend is that couples are currently getting married at a later age and marrying in the thirties is now the new normal. However, while marriage may be getting placed put on hold for some of these young adults that does not necessarily mean that purchasing a home has. One result of couples getting married later is that each spouse is coming into the marriage with more possessions. After marriage, they have to merge their property, and, sometimes, this includes moving into a home owned by one of them.
So what are the consequences when homes and marriages mix? Generally, when parties enter into a marriage, what they own in their individual name prior to their wedding day is considered their sole and separate property. Separate property is typically not subject to division between the parties during a divorce. There are caveats to this, however, because, pursuant to Pennsylvania law, there are ways that what was once separate property can turn into marital property when dividing assets pursuant to a divorce.
Marital property also includes the increase in value on premarital items, homes included. For example, Spouse A owned a house prior to marrying Spouse B. After Spouse A and Spouse B are married, Spouse B moves into the house and they live there as a married couple. Ten years later, they decide that the marriage has broken down and the relationship is unsalvageable. The home that Spouse A bought prior to the marriage has increased in equity by 35% and is now worth much more than it was on the day the parties married. To move forward with their divorce, the parties will have to divide their assets. When determining what is a marital asset, the general rule is that all property acquired by either party during the marriage will be presumed to be marital property. Additionally, the increase in value of any nonmarital property acquired prior to the marriage is also marital property. While there are exceptions, in this case, a portion of the house will be considered a marital asset because the property increased in equity during the marriage. Therefore, during the divorce process, it will be listed as both a marital asset and a nonmarital asset. The marital portion of the asset will be subject to division.
A premarital item may convert to a marital item is through something called transmutation. Transmutation is a term used by the legal community to describe an individual’s property that has been converted into marital property. Transmutation occurs when there is a commingling or mixing of separate property with marital property. The theory of transmutation exists because, when there is a commingling of the property, it is mixed together to such a degree that it cannot be separated for the purposes of distribution. In the context of a house that was owned prior to the marriage, a transmutation of the home would take place if the new spouse was added to the deed during the marriage. Once transferred into the names of both parties, the entire home becomes marital property subject to division, regardless of who had initial ownership. When a property is transferred with joint ownership or by the entireties, this creates an interest where the parties either co-own the property equally or each own an undivided interest in the property. Transferring the property into both names is a beneficial way to hold title to a property because it grants the surviving co-owner ownership in the event the spouse dies. It also prevents the property from having to go through the probate process.