How Does Your Inheritance Affect Your Divorce Case?

It is not uncommon for a spouse to have  received an inheritance during the marriage.  When people are divorcing, one of the biggest issues is how the court will divide their assets. The first step a court must take when determining how to divide assets in a divorce case is to classify those assets as either marital or non-marital.  How would an Illinois court classify the inheritance?  Is it marital or non-marital?

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Pursuant to Section 503(a) of the Illinois Marriage and Dissolution of Marriage Act, all property acquired during the marriage is presumed to be marital property, except where that property is shown to be obtained by a certain method. Specifically, the statute lists “non-marital” property as “property acquired by gift, legacy or descent or property acquired in exchange for such property.” One party’s inheritance in a divorce case would typically fall under this category of non-marital property.

 

However, Section 503(c) provides that even non-marital property can be treated as marital property subject to division at divorce in particular instances. For example, an inheritance can be converted into a marital asset if it is commingled with marital property, and loses its identity through the acquisition of a newly created asset during the marriage.  Borrowing a term from medieval alchemy, this loss of identity is referred to as “transmutation.”

 

One common example of when non-marital property can be transmuted into marital property is when it is placed in joint tenancy with the other spouse. When one spouse places the non-marital property in joint tenancy with the other spouse, it creates a rebuttable presumption that a gift was made to the marital estate and the inherited property was intended to become marital property. In order for the spouse contributing the non-marital property to rebut this presumption, he or she would have to show that the non-marital property is traceable by clear and convincing evidence. What exactly a court will find as being “traceable by clear and convincing evidence” is highly dependent on the particular facts of the case and the extent to which the non-marital property was mixed with the marital property.

 

By way of illustration, an inheritance can be commingled with marital property where the spouse who received the inheritance places it into a joint bank account with the other spouse. Simply placing the inheritance in a joint account will create a presumption that the funds were intended to become marital property.  However, this presumption can be rebutted if the inherited funds can be easily accounted for, and there is evidence that no gift to the marital estate was intended.  If, on the other hand, the inherited money has become so mixed with marital funds that it loses its identity, the presumption will be difficult to overcome. For example, if both parties used the joint bank account for deposits, withdrawals, payment of marital bills, and the purchase of marital property, a court may be inclined to treat that account as marital property.

 

Another common example is where the spouse who received the inheritance then uses those funds to purchase a house after the parties are married. The house is then used by both parties as the “marital residence” which is titled jointly, in which the parties raise their family, and to which both parties contribute financially.  In this scenario, a court may find that the house is marital even though non-marital funds were used to purchase it. This is because a court may find that the initial inheritance has been so commingled in the acquisition of a new asset that it is no longer traceable by clear and convincing evidence.

 

After determining what assets are marital and what assets are non-marital, the second step is the court must equitably divide the marital assets. How inherited property will be treated for purposes of division of marital is highly dependent on the facts of a particular case and the other assets involved. When it comes to determining what is equitable, courts have a substantial amount of discretion.  There is no rule that the court must divide marital assets equally.  In fact, in cases where one party has a sizable non-marital estate due to an inheritance, the court may very well award the other spouse a disproportionately larger share of the marital assets.

 

Dealing with inheritance in a divorce case can be very complicated, depending on the facts of the case. It is important to be aware of how an inheritance my affect the division of assets in a marital estate. If you have received an inheritance or expect to receive one, and are concerned that you may be getting a divorce, you should seek the advice of counsel to protect your assets. Alternatively, if you are married to someone who has received an inheritance and you are planning to get divorced, you should seek the advice of counsel to ensure you receive your fair share of the marital estate.

 

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