In a prior post, we discussed how property is classified between "Marital Separate Property" and "Marital Partnership Property" ("MPP") in Hawaii during a divorce. In this post, we will review how MPP is categorized and distributed.
In Hawaii, it is important to note that Hawaii Revised Statutes Section 580-47(a) affords the family court wide discretion when dividing MPP. The Hawaii Supreme Court has espoused using business partnership principles as guidance when divvying up MPP and, therefore, treats a marriage like a business partnership. While the Hawaii Supreme Court has recognized that "there is no fixed rule regarding property division other than what is provided in Hawaii Revised Statutes Section 580-47", the family court may use something called the Marital Partnership Model, which is based on the Hawaii Uniform Partnership Act, as guidance.
As a result, MPP in a divorce is placed into one of five categories and where a piece of property is placed will generally determine how the property is ultimately distributed. Remember, these are only general guidelines and there is no guarantee of a 50/50 split. The court has the discretion and equitable authority to divide MPP as it sees fit. The following are the categories established by case law in Hawaii:
Category 1: The net market value [NMV], plus or minus, of all property separately owned by one spouse on the date of marriage, but excluding the NMV attributable to property that is subsequently legally gifted by the owner to the other spouse, to both spouses, or a third party.
What this means: Hopefully, 100% of premarital property owned by each spouse will be returned to the respective parties. The NMV is determined at the date of marriage.
Category 2: The increase in the NMV of all property whose NMV on the date of marriage is included in Category 1 and that the owner separately owns continuously from the date of marriage to the date of the conclusion of the evidentiary part of the trial [DOCOEPOT].
What this means: Appreciation from all Category 1 property will likely be divided between the two parties with a 50% cap for non-owner spouse. NMV determined at date of divorce.
Category 3: The date of acquisition NMV, plus or minus, of property separately acquired by gift or inheritance during the marriage but excluding the NMV attributable to property that is subsequently legally gifted by the owner to the other spouse, to both spouses, or to a third party.
What this means: Hopefully, 100% of gifts and inheritances acquired during marriage that weren't separated are distributed to back to the owner-spouse. NMV is date of acquisition.
Category 4: The increase in the NMV of all property whose NMV on the date of acquisition during the marriage is included in Category 3 and that the owner separately owns continuously from the date of acquisition to the DOCOEPOT.
What this means: Appreciation of Category 3 property will likely be divided between the two parties with a 50% cap for the non-owner spouse. NMV is determined at the date of divorce.
Category 5: The difference between the NMVs, plus or minus, of all property owned by one or both of the spouses on the DOCOEPOT minus the NMVs, plus or minus, includable in categories 1,2, 3, and 4.
What this means: This is basically the catch-all category where the "leftover" property goes. Usually this includes joint marital property and all jointly and separately owned property purchased with marital funds or resulting from marital efforts.
Categories 1 and 3 are considered the parties' "capital contributions" to the marriage/partnership and according to partnership law, are likely to be returned to the respective parties. Categories 2 and 4 are "during the marriage increase in NMVs of Categories 1 and 3 properties" and are considered "partnership profits" to be generally shared equally.
The Supreme Court of Hawaii has stated that "if there is no agreement between the husband and wife defining the respective property interests, partnership principles dictate equal division of the marital estate where the only facts proved are the marriage itself and the existence of jointly owned property."
Having a valid premarital or post-nuptial agreement can help protect each parties' personal assets (and their appreciation during the marriage) by qualifying them as Marital Separate Property and also provide a framework for how MPP will be divided and distributed in event of a divorce.
Samuel K.L. Suen is an attorney based in Honolulu, Hawaii specializing in estate planning, probate, conservatorship and guardianship matters.
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