Divorce Disputes: Marital Property Versus Separate Property

In any divorce proceeding, each side wants to receive his or her fair share of the marital property. In Ohio, most property obtained during marriage is considered marital property and each spouse has an equal interest in the property. Conversely, property obtained before the marriage is considered separate property, which is not subject to division upon divorce. Ohio law has a statute that defines what is considered separate and marital property.

Despite the statute, disputes often arise in a divorce where one party claims that property should be considered marital property and subject to division, while the other party argues it is separate property in order to retain sole ownership. A recent ongoing example involves one spouse who is claiming that an oil and gas lease signed by both parties should be considered marital property.

Marital Versus Separate Property

In April 2001, James Kuhn purchased a property for $30,000 with $6,000 down and financed the remainder through a bank. The property was deeded in his name only. In 2002, James rolled the mortgage into a mortgage with another bank in the amount of $136,000 to construct a home on the property. In 2006, James took out a home equity line of credit for $25,000. In February 2007, Kelly Fatheree paid off the balance due on the line of credit for James, and she paid another $80,000 toward the mortgage on the property. Together, James and Kelly refinanced the amount remaining on the property.

Thereafter, James and Kelly were married and the property and home became their marital residence. Eventually, the couple paid off the mortgage on the property. In 2011, the couple executed an oil and gas lease with Gulfport Energy Corporation for oil and gas rights to the marital residence property. Both parties were identified as the "lessors." The lease provided for a signing bonus of $121,285.00, and twenty percent royalties in the event oil and gas was produced from the property.

In 2012, James filed for divorce. The parties agreed on the distribution of all property, except for the disposition of the oil and gas lease signing bonus check and the rights to any future royalties. At a hearing before a magistrate judge, the judge determined that the marital residence property belonged to James. And therefore, the signing bonus and the rights to any future royalties under the oil and gas lease were the sole property of the husband. The magistrate judge noted that James paid Kelly $70,000 and agreed to pay her another $10,000. The trial court adopted the magistrate judge's decision.

Wife Appeals Decision of Trial Court

Kelly appealed on the decision. On appeal, Kelly argued she had invested premarital funds in the subject property--the $18,644.38 toward a home equity line of credit and $80,000.00 toward the mortgage. And the couple refinanced the property in their names during the marriage. She therefore claimed that this provided her a separate property interest, and the signing bonus check and the rights to any future royalties constitute marital property acquired during the marriage.

The appeals court held that "Based on the nature of the payment, we find the $121,285.00 to be marital property just as any other income generated during a marriage." And the court awarded half to each party. The court, however, held that James retained sole rights to the future royalties because "no transmutation occurred," which means the character of the property was unchanged. This is not the final word on the matter. The case has been appealed to state's Supreme Court and oral arguments are scheduled for May 5.

Contact a Cleveland, Ohio Divorce Attorney

If you are going through a divorce, it is important to have an experienced divorce attorney represent who can protect your property rights. Laubacher & Co.'s Cleveland divorce attorneys have significant experience helping individuals through divorce proceedings. Contact our divorce attorneys today for a free initial consultation.

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