Property division issues can be a challenging part of any divorce, whether spouses can work out a property settlement, or they let the courts decide. Disputes on these issues can easily escalate when gifts or inheritances are involved.
Find out how the law in your state and the facts in your case matter when it comes to property division in your divorce and gifts and inheritances.
Property Division Methods in Your State
Know whether or not your state follows equitable distribution or community property laws covering property issues involving married couples. The type of law in your state will impact how property gained by gift or inheritance is treated in your divorce.
Property is generally classified into two groups:
- Marital property, gained by a couple during the marriage
- Separate property, acquired by a spouse before marriage, or certain property acquired by one spouse after marriage
Equitable Distribution States
Most states follow equitable distribution law. When a couple divorces, marital property is divided in an equitable or fair way. Note that fair doesn't always mean equal. How property received as a gift or inheritance is treated in divorce varies by state law.
Depending on state law and the facts of your case, a gift or inheritance may be treated in these ways:
- The recipient spouse keeps it as his or her separate property, with no impact on dividing marital property
- The gift or inherited property is a spouse's separate property, and its value is a factor in dividing marital property
It's also possible that property received as gifts or through someone's will is marital property.
Community Property States
In a community property state, generally property acquired during marriage is community property. Upon divorcing, generally each spouse takes half the community property.
Spouses can also have separate property, which they keep in the event of a divorce. State law sets out the specifics, but generally, separate property is:
- Property you owned before marriage
- Property you alone receive during marriage as a gift, or as an inheritance
It's also usually presumed by law that property received during marriage is community property. So if you divorce, you need to show property is separate property as a gift or inheritance. For example, you would need to show the source of funds in your bank account was a gift to you from your parents.
Yours, Mine or Ours: Rules for Gifts and Inherited Property
There are some general rules to know when it comes to gifts and inherited property. However, do talk to your divorce lawyer about the background facts for these assets to help make sure the property division in your divorce is fair and accurate.
Gifts between spouses may be treated as a gift to the couple's marital property. A common scenario is transferring title to real estate from your name alone to joint ownership with your spouse. Using your separate property, such as providing the down payment for a house, may be a "gift" to the marital property.
Gifts can be made to you and your spouse as a couple. Third parties, even your grandma, can make joint gifts to a couple. The answer all turns on your state's law, the facts and the proof in your case.
Mixing and changing property types. Separate property can become marital property depending on how you hold its title, use it and your intentions. Commingling or mixing your separate assets, such as bank account balances, with marital assets can mean a change from separate to marital property.
You can also do something that transmutes or changes property from separate to marital. For example, changing the title of a car you own and allowing your spouse to drive it, or using your money to fix up your marital home.
Understand that the lines aren't as clear as you might think. Your lawyer can best help you review your property inventory and the history behind it, and answer whether or not your case falls within a rule or is an exception to it.
Questions for Your Attorney
- Can I show my parents intended to give me a rental property, even if my spouse's name was on the deed?
- Are expensive wedding gifts treated as separate property of one spouse, or a joint gift to a couple?
- I don't have any separate bank accounts, so I put inherited money from my father in the joint savings account I share with my spouse. Is the inheritance still my separate property?