America is one of the only nations that gives property owners rights to the minerals found on their land. This allows average citizens to “strike it big,” earning significant royalties after oil companies come in and start profiting from the deposits. This all sounds great, but what happens when a divorce is thrown into the equation? What happens if a couple divorces, and later it becomes obvious that a piece of raw land owned by a spouse is extremely valuable?
Marital and Separate Property
In states with equitable distribution laws, property owned by a spouse prior to the marriage is considered separate property. Even if a spouse accepts royalties for the exploitation of oil on a piece of land after the marriage ends, there is no way for the other spouse to gain access to these funds. Everything related to the land is considered separate property, including income from mineral rights. On the other hand, the land would be considered marital property if it were acquired during the marriage, and that would include mineral royalties.
Financial Disclosure Laws
A shrewd spouse might be aware that certain land has vast deposits of minerals, and they may try to use this to their advantage in a divorce. This is especially problematic if spouses want to “trade” certain assets instead of liquidating them. For example, one spouse might want to keep total control of their retirement plan. In this situation, the other spouse might allow them to keep their retirement plan in exchange for another piece of property.
But what happens if the piece of property they offer is actually much more valuable than it seems at face value? The spouse might be aware that this seemingly normal piece of property actually holds vast mineral reserves. This means that by allowing their spouse to keep their retirement plan in exchange for the piece of land, they could get a much better deal.
Of course, there are strict financial disclosure laws when it comes to dividing assets in a divorce. A spouse must fully disclose everything they know about the true value of their assets. If they fail to do this, they face significant legal penalties.
On the other hand, after the assets have been divided, the spouse who keeps the piece of land would have complete control over it. They would be the only person on the title, and this means that there is nothing really stopping them from profiting fully from oil deposits later. A clever spouse could simply wait a few years and then pretend to “discover” the oil deposits without anyone being the wiser.
Determining the Value of Minerals is Not an Exact Science
It may also be difficult to determine the exact value of mineral deposits on a piece of land. Often, it is not until operations are well under way that property owners can discover just how much their land is actually worth. This means that when it comes to determining oil and mineral rights in a divorce, it is definitely not an exact science.