If you are preparing to divorce your spouse in New Jersey and are wondering about how your inheritance or that of your spouse might be handled, it’s important to understand how the equitable distribution rules work. In New Jersey, assets that either spouse acquires during a marriage are considered to be a part of the marital estate and subject to division. However, there are a couple of exceptions to this general rule, and one of those is for inheritances. Here’s some information from a divorce attorney at the Ziegler Law Group, LLC, with offices in Essex and Bergen County, about inheritances in divorce.
Marital and Separate Property in New Jersey
Before addressing inheritances in a divorce, it is first important to understand how courts treat the marital property and separate property a couple has accumulated. In general, marital property includes any assets either spouse accumulates during a marriage. Separate property includes any assets one spouse separately owned before getting married and brought into the marriage.
When a couple gets divorced, only the marital assets are subject to division. Any property identified as separate will not be included in the marital estate and will not be divided. While all assets acquired by either spouse during a marriage are generally included in the marital estate, there are a couple of exceptions recognized under New Jersey law, including gifts given to one spouse by a third party and an inheritance one spouse receives.
Equitable Distribution in New Jersey
New Jersey follows an equitable distribution rule under N.J.S.A. 2A:34-23.1. Under this approach, the assets and debts that are included as marital property must be divided fairly, which does not necessarily mean an equal division. While marital assets and debts accumulated during a marriage are included in the marital estate and subject to equitable distribution, the same is not true for separate assets and debts. A spouse’s separate assets and debts will remain with that spouse and will not be divided between them and the other spouse.
Since an inheritance received either before marriage or during it by one spouse is classified as that spouse’s separate property, it should not be divided. For example, if your father passed away and left you $100,000 in his will, that money should remain as your separate property and not be divided with your spouse in a divorce. However, there are some situations in which an inheritance can lose its separate nature and be included in the marital estate.
When Might an Inheritance Lose Its Separate Status?
Several situations might cause an inheritance to lose its status as separate property in a divorce. It is important to understand how and when this might occur whether you have received an inheritance you would like to protect or wonder whether you might access a portion of the inheritance your spouse received.
1. Commingling the Inheritance With Marital Funds
If a spouse who receives an inheritance commingles it with marital funds, it can lose its status as that spouse’s separate property. For example, if a spouse receives an inheritance and deposits the proceeds into a joint bank account, the mixing of the funds will cause the inheritance to lose its separate nature. It will then be subject to division in the divorce case.
2. Appreciations in Value
If your spouse received an inheritance of property, and you contributed to its value without being added to the deed, the increase in the property’s value might be considered to be a marital asset. For example, if your spouse’s grandmother bequeathed a home to your spouse in her will, the house would be considered your spouse’s separate property. However, if you then spent time, money, and effort renovating the home, the increase in its value caused by your contributions will become marital property even though the home itself might remain as your spouse’s separate property. For instance, if your work caused the value of the home to increase by $100,000, bringing its total value up to $500,000 from $400,000, the $100,000 increase would be a marital asset while your spouse will retain his/her interest in the home.
3. Adding Your Spouse to the Inherited Property’s Title
If you inherited a house from your grandma and later added your spouse’s name to the property deed, that will change the status of the house from your separate property to marital property subject to equitable distribution in your divorce.
How to Keep an Inheritance as Separate Property
If you anticipate receiving an inheritance while your marriage is on rocky ground, there are a few things you can do to ensure that it remains characterized as your separate property in the event of a divorce. Make sure to deposit any funds you might receive in a separate account that is only in your name. Do not use the funds to pay for joint obligations or joint purchases. If you inherit a house or other real estate, don’t add your spouse’s name to the deed or title. If the property needs renovations, pay for them out of your separate, inherited funds, and don’t ask your spouse to do any of the work.
It can be hard to prove that your inherited property retained its separate nature during a divorce if you have commingled it with marital assets or when your spouse contributed to its increase in value. You must be careful about maintaining your inherited funds in a separate account and retain records showing the source of your separate property. As long as you carefully keep your inheritance separate, it will only belong to you. For example, if you inherited $400,000 from your mother and kept it in a separate investment account, the money and any increase in its value as it grows would be your separate property and outside of the reach of your spouse during a divorce. If you subsequently used funds from your separate investment account to purchase a vehicle that you titled only in your name, the vehicle would also continue to be your separate property.
If you received a large inheritance before getting married, you might also consider entering into a prenuptial agreement to clearly show that your inheritance is your separate property and that your spouse agrees to that characterization. You can also ask your NJ divorce attorney at Ziegler Law Group, LLC to draw up a post-nuptial agreement that addresses an inheritance you received after you married to achieve the same result.
Proving Your Inheritance is Separate
If you inherited property and subsequently get divorced, it will be your burden to prove it is your separate property. You will need to produce records to trace the asset’s ownership and show you never commingled your inheritance with marital property. If you were meticulous with your recordkeeping, this might be fairly straightforward. However, most people do not anticipate getting divorced later and do not take the time to ensure their property is kept separate.
Even depositing an inheritance check in a joint account with your spouse for a week until you have time to open a separate account could be enough for a court to consider your inheritance to be marital funds because of commingling. You would need to prove that you only placed the money in the account for a short time to keep it safe and didn’t intend for it to become a marital asset.
Talk to the Ziegler Law Group, LLC
If you received an inheritance or wonder whether you might be entitled to a portion of your spouse’s inheritance in your divorce, you should talk to a divorce attorney at the Ziegler Law Group, LLC, with offices in Essex and Bergen County. Call us to schedule a consultation at 973-878-4373.
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