In past articles I’ve spoken about what documents you need to get rid of or update before, during, or after a divorce. But what about your assets themselves? For the happily wed, marriage should be about sharing everything, including gifts or inheritances given by parents, grandparents, or other relatives and friends.
But when a marriage ends in divorce, there usually is no longer any desire to share assets. Unfortunately, at that point it may be too late to keep inherited assets such as vacation homes, rare collections, cash, and other gifts away from a former partner, even if those assets were never intended to go to that person.
What is considered separate versus marital property can vary, depending on the state in which a couple lives. In New York, for the asset not to become a “marital asset,” it must be kept separate. For things like a vacation home, when both partners pay for the upkeep, maintenance and possibly any mortgage on the home, it will quickly turn into a marital asset.
One of the best ways to avoid this problem is with a prenuptial or postnuptial agreement. This is most often done when one or each of the couple is going into the marriage with their own substantial set of assets. While not always airtight, agreements can help shield assets such as an inherited business, money, property or a rare art collection should a couple end up in divorce court. The agreement usually states that each spouse will forgo his or her rights to any inheritance or major gifts given to the other partner before or during the marriage.
It also states what each spouse is bringing into the marriage and that the other spouse has no rights to it. A prime example would be if one of the spouses is bringing in a family business that’s owned with multiple members of his or her family and wants to make sure that it stays with his or her family.
Of course many people don’t want to go to that extreme, or they receive a gift or inheritance after many years of marriage. In that case, you need to at least maintain some paperwork showing where the gift or inheritance came from. A letter from the donor explaining for whom the funds were intended or even a wedding card addressed to just one person also may help. The more you have to show, the better your claim that it’s not marital property.
If you do get an inheritance, the simplest thing is not to commingle inherited money or other assets. Do not put it in an account that also includes the other spouse’s funds. Instead, should put it in a separate bank or investment account. If it’s separate, you avoid the argument that it was gifted to the other spouse as well. Of course, if you spend an inheritance while married, in most cases it will be considered gone. You don’t get reimbursed on divorce because you spent a gift from your grandparents on a wonderful vacation.
Keeping the asset in just one spouse’s name usually works but has its drawbacks. The biggest one is that your family is now forced into a probate situation upon your death (unless there’s a beneficiary on the account). It also becomes difficult to pass that asset directly to the children or other family members instead of giving at least part of it to the surviving spouse.
Refinancing a mortgage and adding a spouse’s name to the deed at that time, or completing major renovations with funds that were jointly earned by a couple, could also jeopardize full ownership of a home. It starts to become a gray area as to who has rights in the property. As such, the titled owner should cover all renovation and refinancing cost and save documentation that proves it.
Similarly, if a gifted vehicle holds considerable value, as some vintage models do, the beneficiary should make sure only his or her name is on the title and registration and that he or she, not a spouse, is the primary driver.
The use of a trust is a great way to stop any assets from going to your child’s ex in the event of divorce. You can put almost any asset, whether it’s cash or a vacation house, into a trust. The asset does not go to that child directly and therefore normally would prevent it from becoming marital property. A trust can be as broad or specific as someone wants. You can state who gets to use the assets in the trust and where they go after your children. Setting up a trust is usually more expensive than just gifting the asset directly, but the benefits almost always outweigh the expense.