Family Law

Divorce and Property Division: Gifts and Inheritances

By Kristina Otterstrom, Attorney
Dividing property in a divorce can be challenging. Understanding how courts divide property in your state will help you keep your own property separate.

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Basic Property Laws

Most couples own property together by the time they divorce. For divorce purposes, property isn’t limited to real estate or land. It includes homes, cars, furniture, inheritances, stocks, or even a family business. When a couple owns property jointly, it’s called “marital property.” A judge will divide marital property between the spouses as part of a divorce judgment.

Sometimes, property acquired by one spouse before marriage can become marital property by either spouse’s contributions to the property or its maintenance. For example, a spouse who worked for the other spouse’s family business during the marriage may claim an interest in the business. Or, if marital funds are used to improve one spouse’s separate property, such as a home, the non-owner spouse may have a right to some portion of the home's value.

Community Property Laws

How your assets are divided in a divorce will depend largely on your state's laws. If you live in one of the community property states—Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, or Washington—a judge will divide your marital property down the middle, so that you and your spouse will each be entitled to 50% of the value of all jointly-owned property.

With a community property scheme, judges won’t analyze which spouse deserves more property: They will simply try to ensure that the property division is equal. Courts will however take a close look at the "character" of the property, meaning whether your property is community (joint) or separate (owned by only one spouse). In a community property divorce, spouses typically get to keep their separate property.

Separate property includes:

  • any property owned by either spouse before the marriage, and
  • gifts or inheritances received by either spouse before or during the marriage

Your spouse may try to claim an inheritance or gift was made to both of you. Sometimes you’ll need to provide evidence to a judge that the property was gift just to you. For example, if you're claiming that you got a gift of $10,000 from your parents, you may want to produce bank records showing that your parents deposited that amount into your bank account and that the money didn't come from a community source, like income earned or savings collected during the marriage.

Equitable Distribution Property Laws

The majority of states follow an equitable distribution approach, where property is divided fairly, but not necessarily equally. In these states, a judge will assess each spouse’s financial situation and other factors to determine if one spouse deserves more assets in the divorce.

In an equitable distribution state, a judge may treat a gift or inheritance in one of the following ways:

  • the recipient spouse keeps the gift or inheritance as separate property, and it doesn’t impact property division in the divorce
  • the recipient spouse keeps the gift as separate property, but the gift’s value is factored in when dividing marital property, or
  • the gift or inheritance is classified as marital property, which can be divided between the spouses.

The individual circumstances of your case will impact property division in your divorce.

Yours, Mine, or Ours: Rules for Gifts and Inheritances

Even among equitable division states, property laws can differ. Be sure to consult a local family law attorney if you have questions about property division in your case. Below are some general rules governing gifts and inheritances.

Gifts between spouses may be treated as a gift to the couple's marital estate. When a spouse uses separate property to invest in marital property, the spouse’s separate property becomes part of the couple’s marital estate. Specifically, if you use your inheritance (separate property) to make a down payment on the marital home, your “gift” can become marital property, which is subject to division.

Gifts can also be made to you and your spouse as a couple. You and your spouse can receive a joint gift from a family member or a third party. For example, you may be required to prove that a payment from your grandmother was meant to be a separate gift to you and not a joint gift to you and your spouse.

Separate property can become marital property depending on how you hold its title and use the property during your marriage. Commingling or mixing your separate assets, such as bank account balances, with marital assets can convert the separate property into joint. When it becomes too difficult for a court to determine what portion is separate and what is community, and you don't have the evidence to tie it all out, a judge may be inclined to call it all joint. The party claiming separate property usually has the burden of proof. For this reason, it's best to keep your separate property in a separate account, where it'll be easy to trace the date it was received and where—or who—it came from.

Your actions during a marriage can also transmute or change property from separate to marital. For example, if you change your car’s title to your spouse’s name and allow them to drive it during the marriage, it can become your spouse’s property too.

Understanding the difference between separate and marital property isn’t as clear as you might think, but an experienced divorce lawyer can help you better understand your marital estate and determine what you’ll end up with in a divorce.

Questions for Your Attorney

  • How can I show that my parents intended to give me a rental property if my spouse’s name is on the deed?
  • Are major wedding gifts treated as separate property or joint gifts to the couple?
  • My spouse and I don’t have separate bank accounts, so I put an inheritance from my grandfather into my marital bank account. Is the inheritance still my separate property?
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