Inheritances and Equitable Distribution in NJ
In most cases an inheritance given to one spouse is not subject to equitable distribution at the time of divorce, however there are some exceptions.
Inheritance During the Marriage
New Jersey law specifies that all property acquired during the marriage by either spouse by way of inheritance (sometimes called ‘devise’) or gift by a third party will not be subject to equitable distribution.
Marital Property vs. Separate Property
Equitable distribution is the division of property in the event of a divorce. Equitable distribution requires that divorcing spouses classify their assets and debts as either marital property or separate property to determine how the assets or debts should be divided fairly.
Marital Property includes assets and debts acquired during the marriage, whether by either spouse separately or by both spouses jointly. Marital property is subject to equitable distribution at divorce.
Separate Property includes assets and debts a spouse acquired before the marriage, as well as some assets inherited or gifted to just one spouse during the marriage. Separate property is not subject to equitable distribution at divorce.
For example, if a wife’s grandfather dies and leaves wife $1,000 in his will, that $1,000 is wife’s separate property and not subject to equitable distribution at divorce.
Change in Status or Separate or Marital Property
While the general rule is that separate property is not subject to equitable distribution at divorce, separate property may become marital property in some cases. This change in status can happen in a number of ways.
- Comingling Funds
Comingling funds happens most often when a spouse deposits separate property funds into a joint bank account, or deposits joint funds into a separate property bank account. If you wish to keep an asset separate property, it cannot be comingled with marital property.
- Adding Spouse to Title
If a spouse inherits property in his or her own name as separate property, but later adds a spouse to the title of that property, the property changes from separate property to marital property.
- Increase in Value
If a spouse receives a separate property inheritance and the other spouse contributes to the value of the property without taking title to the property, the increase in value of the property may become a marital asset. For example, if a wife inherits a home, and the husband contributes to the remodeling of the home, the value of the increase in value of the home due to the husband’s contribution becomes marital property while the home itself may remain the separate property of the wife.
The best way to ensure that your separate property remains separate not subject to equitable distribution is pretty simple: keep it separate. That means that any funds received as an inheritance must be kept in a separate account that is in your name only, and which does not contain any funds that are marital property. Note that your paycheck is marital property so do not put it in an account with inherited or gifted money. If properly maintained in a separate account and not comingled, both the original amount and any interest earned on the money will remain separate. Likewise, if the funds are used to purchase an asset and title is only in your name, that asset will remain separate property.
It can be difficult to prove that property is separate property during divorce if the property is comingled or if your spouse contributed to the property if you are not careful about maintaining separate accounts. If your spouse seeks equitable distribution of an asset you claim as separate property, you will need to provide records of the source of that property (called tracing) to determine the proper categorization of the asset.
If you receive an inheritance or gift and are concerned with keeping it separate property, please call Peter Van Aulen a NJ divorce lawyer at (201) 845-7400 for a free consultation.