Like many people, the pandemic has given us additional time at home to catch up on all the television we have been neglecting. On one show based in California, a main character dies and leaves a significant inheritance to other characters on the show. One character received an inheritance of several million dollars. This character, to create some conflict, was about to be married. There was some concern in the family that the fiancé could wind up with half of the money.
While it made for a good bit on the show, the truth is that the person who inherited the money had nothing to worry about. In California, popularly known as a Community Property state, marital assets are split in half during a divorce. Gifts and inheritances are the exceptions to the rule. Short of Transmutation, i.e. putting your spouses name on a deed of house you inherited, or commingling, which is when you combine funds that would be considered separate property with funds that are marital property, an inheritance is considered to be separate property.
Well, that's California, we are in New York, and New York is not a community property state. So, what happens to an inheritance here in New York State, which follows the law of Equitable Distribution?
Well, it's pretty much the same as in California. An inheritance is considered separate property as long as it is maintained as separate property and is therefore not subject to equitable distribution.
To know what separate property is, you have to know what marital property is. Marital property is any property acquired by either spouse during the marriage, regardless of who holds the title. However, there are exceptions based on pre or post-nuptial agreements, which can stipulate that property that would have otherwise been considered marital property would remain separate.
If you are going to put a pre or post-nuptial agreement in place, you should do so with the advice of an experienced family law attorney. It is possible to challenge a contract, and the judge will set it aside if they feel the agreement was coerced or if the agreement unfairly benefits one spouse over the other.
Separate property is assets that remain one spouse's property and are not subject to equitable distribution during a divorce.
Assets that are separate property include:
- Salary or wages earned before the marriage
- Gifts or inheritance explicitly given to one spouse
- Property owned by a spouse before the wedding
- A personal injury settlement or judgment specifically for pain and suffering
- Property purchased and maintained separately with separate funds.
There are cases where the separate property can be converted into marital property. The phrases often heard when it comes to the separate property becoming marital property are Transmutation and Commingling.
In New York, inheritance of a real object, such as a house, cannot be transmuted from separate property to marital property by any effort, contribution, or residence by the non-titled spouse. In the case of a house, if the non-titled spouse worked to increase the home's value, then during a divorce, the judge may consider the home's increased value marital property, but overall, the property remains separate.
Commingling is when you take separate property, such as cash from an inheritance, and you deposit those funds into an account you share with your spouse, and you both have access to and use them for martial expenses. The act of commingling the funds is seen by the law as a gift to your spouse. Those funds have now been transmuted to marital property.
Even after commingling funds, it is possible to argue that the funds were still separate. However, the burden of proof is on the person claiming the funds should be separate.
The concept of equitable distribution can be confusing. With so many celebrity divorces in the news, many of which are from the west coast, we often hear about people losing half of their money in a divorce. In fact, there are only nine community property states, including California and Washington State, and except for Wisconsin, they are all west of the Mississippi River.
If you have any questions about equitable distribution or whether an inheritance you received is separate property or marital property, call the Law Office of Anthony J. LoPresti. With over 30 years of New York family law experience, Mr. LoPresti provides representation and counsel in all areas of family law.