When does Income become part of the Corpus?

25 April 2021
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Category: Blog
25 April 2021, Comments: 0

Apparently the Michigan Court of Appeals believes this is determined by how the dividends are spent.

In an unpublished opinion (Wolcott v. Wolcott Docket # 351918 ), the Court of Appeals reversed a Trial Court’s decision to exclude from invasion property acquired in its entirety prior to a marriage (separate property).

It was undisputed that Appellee had acquired dividend paying stock prior to her marriage to the Appellant. It was also undisputed that some of the dividends were used to pay marital expenses. The Trial Court reasoned that the use of the income to pay marital expenses was an indication that the stock was now part of the marital asset.

In financial terms, Corpus is the principal or property of an estate and does not include the income it generates. It seems counter-intuitive that dividends not reinvested into additional shares could be considered part of the Corpus, sufficient to convert separate property into the marital estate.

This issue was not addressed in the opinion nor developed in the oral argument. (Appellant was not approved for oral argument) so apparently the law of separate property (in Michigan) is not consistent with the financial markets understanding of an estate.

Lesson to be learned. Do not spend the income of separate property, unless you are prepared for the Court to convert separate property to part of the marital estate.

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