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Separate and Marital Property: Who Gets What in the Divorce?

October 20, 2022
Property

In 2019, the Amazon founder and former CEO, Jeff Bezos divorced his wife, MacKenzie Scott. Ms. Scott received almost $34 billion in her divorce settlement and became one of the wealthiest philanthropists in modern day. Ms. Scott thereafter re-married in March 2021, but the union was short lived. In September 2022, Ms. Scott filed divorce against her second husband. The question swirling the internet is whether her second husband will be entitled to Ms. Scott’s Amazon fortune. Simply put, the answer is no.

Marital Property v. Separate Property

If Ms. Scott was living in Ohio and filing for divorce in Ohio, I would not be concerned that her second husband would be able to touch her Amazon fortune. However, this requires us to look at the definition of marital property and separate property. In Ohio, marital property will be divided in equal or equitable manner. Marital property is defined, in short, as any property, including income that was acquired by either spouse during the marriage. Whereas separate property is any property acquired by a spouse prior to the date of marriage, any gift or inheritance receiving during the marriage, and any property excluded by a valid antenuptial agreement.

Ms. Scott received her wealth prior to her second marriage. For these facts, we would look to Ohio Revised Code, 3105.17(A)(6)(a)(ii) which states that separate property is

“Any real or personal property or interest in real property or personal property that was acquired by one spouse prior to the date of the marriage.”

Ms. Scott received the Amazon stocks in 2019 pursuant to her divorce settlement, and she did not get re-married until March 2021. Therefore, any money Ms. Scott had at the time of marriage, plus any passive income or appreciation on that money, is still Ms. Scott’s property.

Tracing Assets to Date of Marriage

The most important part of retaining separate property is the ability to trace that asset back to the date of marriage. In Ms. Scott’s case, her marriage was only 18 months, and it can easily be shown that she received the funds before March 2021. Ms. Scott would be able to show her account statements as of March 2021 and indicate that the money she currently has in her account derives from her divorce settlement or any other money earned prior to marriage.

However, this is not always the case for the typical client. Normally, when parties are married for a longer term, they do not keep their monthly or quarterly statements. Because of that, it can be difficult to show what each party own on the date of marriage. For example, a spouse has a 401(k)-retirement account, and they opened the account in 2000. However, they did not get married until 2004. This means there are four years of contributions into that account that belong solely to the contributing spouse. In addition, the contributing spouse is entitled to any growth on the four years of contribution prior to the marriage.

After the date of marriage and until the parties’ final divorce, the balance of that account is marital property and would be divided equally. This is where things can get tricky, how do you prove the balance of the 401(k) in 2004? Typically, financial institutions only hold their records for seven years. If this spouse was to go through a divorce in 2022, it is likely the oldest statement would only be from 2015. We would not be able to show the balance of the account from 2004. The non-contributing spouse could then argue that there is no proof that account had a premarital balance and ask the Court to divide the whole account, not just the marital portion.

Prenuptial Agreements Can Protect Your Assets

It is important for clients to have documentation of what they owned at the time of marriage. This can be done through a prenuptial agreement or by maintaining regular statements.

If Ms. Scott and her husband acquired assets after the date of marriage, including any income earned, they will be divided equally. Therefore, her second husband would only be entitled to half of anything earned from March 2021 until September 2022.

As a result, we should not be concerned that Ms. Scott will be losing her wealth and she can continue in her philanthropic efforts accordingly.

If you have any questions regarding the content of this article or would like to discuss protecting your assets in the event of a divorce, please contact KJK Family Law Partner Carly Boyd (CBOYD@kjk.com; 216.736.7254).

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