Are Gifts Included in Divorce Settlements?
Whether a gift is included in a divorce settlement depends on its initial intent and, crucially, how it was managed throughout the marriage.
How gifts are handled in a divorce settlement is a frequent source of confusion. The classification of a gift depends on specific circumstances and actions taken during the marriage. Whether a gift remains the sole property of the recipient or becomes part of the assets to be divided is determined by its initial classification and how it was treated during the marriage.
The Foundation of Property Division in Divorce
When a marriage ends, property is divided by first categorizing every asset as either marital or separate. Marital property includes assets and income acquired by either spouse during the marriage, such as homes, vehicles, and bank accounts. Separate property includes assets owned by one spouse before the marriage or certain assets received during it, like gifts or inheritances intended for only that person.
Once categorized, property division is governed by state law. The majority of states use the “equitable distribution” model, where a court divides marital property in a manner it deems fair, which is not always an equal 50/50 split. Judges consider factors like the length of the marriage and each spouse’s financial situation.
A smaller number of states follow the “community property” system. This framework treats the marriage as a partnership where spouses equally own most property acquired during the union. In these states, marital assets are divided equally, while each spouse retains their separate property.
How Gifts Are Initially Classified
A gift given to a single spouse by a third party during the marriage is considered the separate property of that individual. This principle also extends to inheritances. The primary factor in this classification is the donor’s intent, and a court will look for evidence that the gift was meant for only one spouse.
Determining intent involves examining the circumstances surrounding the gift. For example, a check from a parent payable only to their child for a birthday signals that the money is separate property. A card addressed to only one spouse would further support this claim.
Conversely, if the same parent gave a check payable to both spouses for their anniversary, the gift would likely be classified as marital property. The name on the check, the occasion, and any written communication from the donor help establish the intended recipient and the property’s legal status.
When a Gift Becomes Marital Property
A gift that begins as separate property can lose that status and become a marital asset subject to division. This can happen through several common actions taken during the marriage, which effectively change the property’s legal character.
Commingling
Commingling occurs when separate assets are mixed with marital assets to the point they can no longer be distinguished. For instance, if a spouse inherits $50,000 and deposits it into a joint checking account used for household bills and family expenses, those separate funds have likely been commingled.
Transmutation
Transmutation is the change of an asset’s character by an action or agreement. This happens when the titled spouse shows an intent to make the property marital. A clear example is when a spouse who inherits a house adds their partner’s name to the property deed, which legally transforms it into marital property.
Gifts Between Spouses
Gifts exchanged between spouses during the marriage are considered marital property. If one spouse buys the other a car or expensive jewelry, that item belongs to the marital estate. The law presumes such gifts were purchased with marital funds and are part of the couple’s shared assets.
Appreciation of a Separate Asset
If a separate asset increases in value due to contributions of marital funds, that appreciation may be considered a marital asset. For example, if marital funds are used for the upkeep or mortgage payments on a separately owned rental property, the increase in value from those contributions is often divisible. The original property might remain separate, but the value added during the marriage is not.
Documentation to Prove a Gift’s Status
The spouse claiming a gift is separate property has the burden of proof, and without proper documentation, an asset will likely be divided as marital property. The most effective evidence is a written statement from the donor, such as a note on a check, explicitly stating the gift is for one spouse alone.
Financial records are also needed to prove a gift remained separate. This involves a method called tracing, which follows the asset from its origin to its current form. For a monetary gift, this means showing bank statements where the funds were deposited into a separate account and never mixed with marital funds.
For physical assets like real estate or vehicles, property titles and deeds are the primary documents. The title should be exclusively in the name of the spouse who received the gift. If the other spouse’s name was never added to the title, it provides strong evidence that the property was not intended to be marital.