Gifts and Inheritances

One problem that couples may encounter in their divorce or separation is how to fairly divide the property acquired during their marriage. The issue becomes more complex if there was a pre-marital relationship, and the parties acquired property during that period that they brought into their marriage. At the outset a distinction has to be made between separate assets (belonging to one spouse only) and marital property (belonging to both spouses). The issue of whether property was acquired as a gift or an inheritance also has to be resolved. If you have questions about property obtained via gift or inheritance during a marriage, Bergen County property division attorney Brian D. Iton can advise you.

Normally, all property acquired during a marriage constitutes marital property. Unless a couple has agreed otherwise, such as in a prenuptial or post-nuptial agreement, the only exceptions to this general rule are bequests/inheritances or gifts from third parties to only one spouse.

For example, if the wife’s grandmother bequeaths her $50,000 in her will, the money belongs to the wife as her separate property. If the wife takes that inherited money and invests it and realizes a return any investment income is also her separate property. Similarly, if the husband’s uncle gives him a car, that car is the separate property of the husband, regardless of his marital status. If he later sells the car, the sums received upon the sale are also his separate property.

Although this sounds straightforward, the fact is that the intended beneficiary of a gift or inheritance is not always easy to trace, and there are situations where a gift or inheritance can -- lose its separate character because of actions taken after it is received.

For example, in the situation above, suppose that the wife deposits the $50,000 in a joint bank account that she has with her husband. As further sums are deposited and withdrawn over time by both parties, it will be virtually impossible to distinguish “her” separate property from “their” marital property. Upon divorce, the husband may successfully claim that, by “commingling” her separate funds with marital funds, the wife essentially “gifted” her separate property to the marriage, and no portion of their joint account has any separate character. Similarly, if the husband’s uncle knew the wife and wanted both parties to have the use and enjoyment of his car, it may be difficult for the husband to later claim that the gift of the car was solely for his benefit.

The main point is that separate property, in order to retain its separate character, must be sequestered from marital property during the marriage. The difficulty, of course, is that many married couples have no idea—or do not care—that gifts and inheritances belong to them alone. And, even when they do know, it may be a very touchy issue for either spouse during the marriage to insist on maintaining the “separateness” of any property, particularly money. Sometimes maintaining a separate account may contribute to the sort of distrust or discord that leads to the breakdown of a marriage. Consequently, when marriages are in harmony, most couples will think nothing of commingling property that is received by inheritance or gift. It is only when divorce ensues that they may ask whether their separate property will be recouped.

For example, if the wife deposited her separate funds in a joint investment account but never withdrew any amounts from that account, she may later argue that, despite being commingled, the separate portion nevertheless remained intact and is directly traceable, so it should be distinguished from marital assets. If husband also contributed money to that joint account his counter-argument would be that the funds were co-mingled.

There is no hard and fast rule that defines when separate property may be “extracted” from a commingled asset without it being deemed to have lost its separateness and become “marital.” Generally, the more time that has elapsed since commingling, the more likely it is that any property received by gift or inheritance will be deemed marital.

In any divorce case, a claim that property received by one spouse as a gift or inheritance constitutes marital property will need to be resolved before the divorce is finalized. Clear cut inheritances, for example under a written will, can be resolved without much disagreement. However, if a spouse inherits funds upon a parent’s death, and then places those funds in a joint account, a real question may arise as to whether those funds are separate or marital upon divorce – particularly if the other spouse used any inheritance that they may have received for the benefit of both parties. If you anticipate that you may encounter difficulties in resolving gift and inheritance issues in the division of property in your divorce case, contact Bergen County lawyer Brian D. Iton locally toll-free at (844) 431-3380, or through our online form to set up a free appointment. Mr. Iton represents people who need a divorce attorney experienced in gift and inheritance issues in Hackensack, Paterson, Newark, Jersey City, and other communities in Bergen, Passaic, Essex, and Hudson Counties.