Financial Gifts in a Divorce
By Elizabeth Rayne, J.D.
In many cases, if you personally receive money as a gift, it will not be affected by a divorce. Generally, gifts made to one spouse are considered "separate property," meaning it belongs solely to the spouse who received it, even if received during the marriage. However, courts may consider the financial resources of each spouse, including separate property, when determining the terms of the divorce. While divorce laws and property division vary by state, courts may have discretion to divide separate property in a divorce depending on the circumstances.
Marital and Separate Property
During divorce proceedings, most courts will distinguish between marital and separate property when determining how to divide assets between spouses. Marital property, known in some states as community property, includes most property that either spouse acquired during the marriage. Separate property includes assets that either spouse had before the marriage, as well as assets received as an inheritance or gift during the marriage. In community property states, marital property is owned equally by both spouses and courts will generally divide that property equally upon divorce. On the other hand, "equitable distribution" states consider a number of factors when determining how to fairly divide marital property. In either case, separate property is not divided as part of a divorce in most states.
Gifts and Divorce
If a gift was made to one spouse, the gift is likely to be considered separate property and not subject to division during divorce proceedings. However, the recipient spouse must demonstrate that the gift was intended as an individual gift to him and not both spouses, such as presents received during the wedding. Further, if one spouse gives a gift to the other spouse, it is considered marital property. Additionally, gifts must be kept separate from marital property or the gift may be converted from separate property into marital property. For example, if a spouse deposits his financial gift into a jointly-held bank account, the money will likely become marital property and the court can divide it. However, if the gift is kept in a separate bank account, it will likely remain separate property.
Property Distribution Factors
Particularly in equitable distribution states, the court has discretion to consider the financial circumstances of both spouses when determining how to divide marital property. Financial resources may include income as well as separate property each spouse may have received as gifts. Additionally, when deciding whether or not to award alimony to one spouse, the court may consider the property distribution. If one spouse already has or received a disproportionate amount of property, she may be less likely to receive alimony, depending on the laws of the particular state.
In many states, courts will also consider misconduct during the marriage when deciding how to divide marital property. Most commonly, courts will consider economic misconduct, which generally refers to situations in which one spouse conceals or wastes marital property, especially when that spouse knows the marriage is headed for divorce. For example, if a spouse depletes marital money in a jointly-held bank account, while holding onto the separate money in his own bank account, the court may consider this during divorce proceedings. As a result of squandering marital funds, courts may award an unequal distribution of property to the innocent spouse or, in some cases, reclassify separate property as marital property as part of the divorce, including gifts.
Elizabeth Rayne earned her J.D. from Penn State University and has been practicing law since 2009, advising clients on issues ranging from employment law to nonprofit management. For two years, she served as a contributing editor for the "Vermont Environmental Monitor."