Does income from separate property become joint property after marriage?

01 Types of income

To settle where the income belongs, the kind of income must first be identified. It is generally accepted that the income produced during marriage by one spouse's separate property falls into three categories: investment returns, fruits and appreciation.

Investment returns come from investment. Investment is the placing of a sum of money or of property in the running of an undertaking for the sake of future gain.

Fruits is a legal concept, meaning the additional income produced by a principal thing or by a right. Fruits are either natural or legal. Natural fruits are obtained according to the natural properties or patterns of change of a thing, such as apples borne by an apple tree or eggs laid by a hen. Legal fruits arise under a legal relationship created by law, under which one thing is subordinate to another, such as interest paid by a bank on a deposit.

Appreciation is a rise in the price of a thing or of a right. According to its cause it is either passive or active. Passive appreciation occurs through inflation or a change in the market, the husband or wife having done nothing to bring it about: a house owned by one spouse before marriage, for example, rising in price during the marriage because the market is strong.

Active appreciation, by contrast, arises from labor, investment or management contributed by one or both spouses, the owner having taken an active part in bringing it about: the increase in value, for example, of a house owned by one spouse before marriage that resulted from renovation carried out by the other during the marriage.

02 Deciding where the income belongs

The text of the provisions

Judicial Interpretation on the Book on Marriage and Family of the Civil Code

Article 26 Income produced during marriage by one spouse's separate property shall, apart from fruits and passive appreciation, be treated as separate property.

The interpretation thus provides that, in principle, income produced during marriage by one spouse's separate property is to be treated as the joint property of the spouses, with fruits and passive appreciation as exceptions that are not so treated.

The other spouse contributes nothing to the creation of natural fruits or of passive appreciation of separate property, and they therefore remain separate. As to the rent commonly obtained by letting a house, which is a legal fruit, the Supreme People's Court's civil division, in its Understanding and Application of the Judicial Interpretation on the Book on Marriage and Family of the Civil Code, observes that legal fruits of that kind differ in no respect from the returns on an investment of separate property, and should also be treated as joint property.

In short, in deciding where income produced after marriage belongs, the question is whether the spouse contributed to the acquisition of the property.

Investment returns are the product of the owner's active effort: where the investment of one or both spouses increases material wealth and the money value of assets, the property is of the kind obtained through their labor and is to be treated as joint property. Passive appreciation and natural fruits, by contrast, usually follow inflation or a change in the market and have nothing to do with any joint labor or management, and they are to be treated as separate property.

The article does not confine "separate property of one spouse" to property held before marriage, so where property acquired during the marriage belongs to one spouse alone, income it produces afterwards is governed by the same rules as income produced by pre-marital separate property.