Protecting Your Gifts and Inheritances from Property Division
By: M. Scott Gordon
When you are thinking about filing for divorce in Chicago, you may be worrying about whether the court will divide certain gifts and inheritances you received—that were intended just for you—during your marriage. Under Illinois law, property is divided during divorce according to a theory of equitable distribution. Property division according to a theory of equitable distribution will entail dividing marital property in a manner that the court deems is equitable, or fair, to both parties. In some instances, what is equitable may also be equal, but equitable distribution does not necessarily mean equal distribution. In order to divide marital property in a manner that is fair, the court first will need to determine what is classified as marital property and what is not—only marital property (and not separate / non-marital property) is divisible.
Now, here is where your separate inheritance or gift comes into play. How can you protect your property from division during divorce?
Understanding How Gifts and Inheritances Usually Are Classified
To better understand what we mean when we talk about gifts or inheritances, we should take a look at a couple of hypothetical examples.
In terms of gifts, let us assume that Spouse A’s parents have decided to sell their home and retire to a smaller condominium. They have sold many of their assets and want to give the profits to their children. They decide to give Spouse A an individual gift of $25,000. The parents only intend the gift to be for Spouse A, and they do not intend it as a gift to the marriage. They give this gift to Spouse A only a few years into her marriage.
Now, when it comes to inheritances, let us assume that more than a decade has gone by, and Spouse A’s parents have lived many happy years in their condominium. They have now both passed away, and they left a portion of their estate to Spouse A. Spouse A inherits $250,000 from her parents’ estate. In the will, the inheritance is clearly intended specifically for Spouse A and not intended as an inheritance for Spouse A’s marriage.
Typically, Illinois law classified such gifts or inheritances from someone outside the marriage as separate (non-marital) property, even when the recipient is married. (This is not the case in community property states, where state law assumes that spouses share property equally.) However, the gift and/or the inheritance quickly can become a more complicated asset if and when it is “commingled” (or mixed) with marital funds.
Commingling Separate Property and the Complications of Property Division
The problem for spouses who want to ensure that gifts and inheritances remain separate property typically is one of “commingling”. When these individual assets are commingled / mixed with marital assets, then the court will look at them differently. How do assets get commingled? For instance, if Spouse A deposited the $25,000 gift from her parents into a joint checking or savings account, the property may have become property of the marriage. The same thing goes for the inheritance. In addition, those assets also may be classified as marital property if they were used to improve marital assets. For example, if Spouse A used either the gift or the inheritance to pay for upgrades to the marital home, it can be difficult to determine what portion may still be separate property and what portion is marital property.
To avoid having gifts or inheritance classified as marital property, it is important for a spouse to keep them separate throughout the marriage. In other words, Spouse A should only deposit the gift or inheritance into a separate account, and that money should never be used for anything related to the marriage.