In New Jersey, equitable distribution applies in a divorce, and this may cause many to wonder which assets will be split between both parties. If one partner gains an inheritance, especially one of significant amount, they may have concerns whether their soon-to-be ex-spouse will be given some of the acquired assets. However, equitable distribution does not necessarily mean that the marital assets will be split equally. Rather, it means that marital property will be divided fairly.
An inheritance is not subjected to equitable distribution, since it is considered separate property, but there are some exceptions. Consulting with a knowledgeable lawyer is the best way to determine if an inheritance will be affected by a divorce.
All assets are examined during a divorce and will be categorized as either separate or marital property. Marital property includes assets and debts of each spouse that were acquired during the marriage. Separate property includes assets that were acquired before the marriage, such as inherited assets and gifts from third parties.
In some cases, assets will be commingled and will not be considered separate property anymore. For example, if a spouse inherits $100,000 during the marriage but they deposit the money in a joint checking account, marital property will be mixed into the funds. It will be difficult or impossible to determine the marital property and the inheritance, especially over a long period. In that case, the inheritance is now marital property.
Transmutation refers to separate property being combined to marital assets to increase its benefits. The transfer of the separate property, such as an inheritance, will make it marital property. This is an intentional action to strengthen the interest of the marital property. An example of this is when one spouse inherits a house and then puts their partner’s name on the deed. The spouse then moves into the house and shares the costs with their partner. If the couple decides to divorce, it will be difficult to make the argument that the house was not intended to be marital property.
However, if the spouse did not put their partner’s name on the deed but they still contributed to make improvements on the value of the home, the updated modifications might be considered marital property. If the couple divorces, the assets might be divided between the two parties.
What Factors are Considered in Equitable Distribution States?
There are different components of equitable distribution, and understanding them can help divorcing couples dictate if an inheritance and other assets will be contentious topics. When deciding how marital assets will be divided, New Jersey courts will consider the following:
- Age and overall physical and mental health of each spouse
- Income and earning capacity of each spouse
- The spouses’ lifestyles
- If written agreements are involved in the divorce, such as a prenuptial or postnuptial agreement
- Contributions of each spouse, including those to the marital property and if the party was a homemaker
- Value of the marital assets
- Tax consequences
- Debts and liabilities
- The length of the marriage
- Career goals
- Future medical and educational costs of each spouse as well as the children
Since someone typically gains an inheritance because of a will from a passed loved one, it will not be subjected to equitable distribution unless it is transformed into marital property. It is easy for an inheritance to become marital property, so the spouse who expects the inheritance should take thorough steps to protect it.
Can I Prove That the Assets are Separate?
In the divorce proceedings, a spouse must prove that the inheritance is separate property and not subject to distribution. Ideally, the spouse who gained the inheritance will be able to trace ownership to show that it was not commingled with marital property. However, this is a difficult task.
If it is believed that the inheritance was mixed into marital assets, a spouse may be able to argue that they had to put the assets into a joint account for a short period of time to protect the funds. Making this argument can help prove that the commingling was unintentional.
Can an Inheritance Have an Impact on Alimony Payments?
Contrary to what many may believe, alimony might be affected by an inheritance, especially if it is a substantial amount. If the lower-earning spouse gains a large inheritance, their overall alimony award will likely be reduced. If the higher-earning spouse is bequeathed an inheritance, they may have to pay more spousal support. Upon receiving a large inheritance, there will be a modification to the alimony award.
What About My Children’s Inheritance?
In some cases, children may be expected to gain an inheritance from their parents, which will be separate from the marital assets. Most states have laws in place that fight against accidental disinheritance. Accidental disinheritance can happen if a parent unexpectedly passes away and did not have a chance to update their will after a recent birth of their child. As a result, the newborn will not be named in the will. The law is meant to protect these children so that they can be a part of the inheritance.
Parents may also choose to disinherit children by choice. If a parent wishes to disinherit their child, they must clearly state their intentions in an updated will. During or shortly after a divorce, the ex-spouses should make sure to update their wills, especially if children are involved.
How can I Protect My Inheritance?
One of the best ways to protect an inheritance is to have a prenuptial agreement. A prenuptial agreement is signed before the marriage is official and handles a variety of assets in the case of divorce. If a spouse is expected to be awarded an inheritance, it is wise for them to consider a prenuptial agreement. Even without an expected inheritance, a prenuptial agreement is beneficial because it helps solve many financial matters should a divorce happen.
Nowadays, many couples have prenuptial agreements, despite whether or not they have large amounts of assets. It is important to note that a prenuptial agreement can override some divorce laws. A prenuptial agreement has many strict rules, so it is imperative that a lawyer is consulted at the initial draft.
Similar to a prenuptial agreement, a spouse can also create a postnuptial agreement. A postnuptial agreement can be made even if the party is not considering a divorce. A postnuptial agreement is constructed after the marriage, and a spouse can establish that an inheritance will not be touched by the other party in the case of divorce. Other assets can be included in the agreement.
Another way to protect an inheritance is to create a trust with the help of an estates lawyer. If a spouse has a will, they need to update it if they are considering or going through a divorce. To protect the inheritance, the spouse can create a trust of the separate property for the children and name them as direct beneficiaries. By doing this, the inheritance will belong to the trust in the event of the spouse’s passing.
It is important to carefully choose a trustee who can manage the trust. A spouse should plan ahead of time and draft the trust with the help of a lawyer. It can also be helpful to discuss matters with the children.
Morristown Divorce Lawyers at Lyons & Associates, P.C. Help Divorcing Spouses with Significant Inheritances
The Morristown divorce lawyers at Lyons & Associates, P.C. resolve various divorce-related matters, including ones pertaining to inheritances. If an individual is not careful, part of their inheritance can be given to their soon-to-be ex-spouse. If you need help establishing what is and what is not marital property, we can help. Contact us online or call us at 908-575-9777 for an initial consultation. Located in Somerville and Morristown, New Jersey, we serve clients throughout Somerset, Woodbridge, Morristown, Parsippany, Rockaway, Short Hills, Chatham, Randolph, Madison, and Morris Plains.