Is There an Inheritance Exemption When It Comes to Divorce?

Inheritance Exemption When It Comes to Divorce

It’s something that might trouble you quite a bit. The thought that you might have to share something left or gifted to you seems highly unfair. However, it begs the question. Is it possible there is an inheritance exemption when it comes to divorce?

Inheritance, as it relates to equitable distribution, comes up as a potential issue when one of the party’s gains assets by way of a will or intestate succession.  The latter means that the decedent failed to specifically designate beneficiaries. It then boils down to who qualifies as heirs as determined by their relationship to the person who died.

More than likely, you’ve heard that New Jersey law requires couples to divide assets and liabilities by way of equitable distribution.  Make no mistake; however, equitable does not necessarily mean equal. Too often, divorcing couples assume they’ll split everything on a 50/50 basis.

In the meantime, NJSA 2A:34-23(h) addresses the issue and exempts inheritance of property or money from equitable distribution. However, there’s an expectation that the heir will keep things separate and apart from his or her spouse.

What does that mean exactly?  If you inherit a house from your parents and change the title over to you and your husband or wife, your separate asset may then become a marital asset. If you decide to divorce, you may find the house subject to equitable distribution.

Husband Disputed Wife’s Inheritance Exemption

Earlier this month, the New Jersey Appellate Division decided the matter of Davis v. Davis.  The case does not present new law, and therefore, is an unpublished opinion. Nonetheless, it may prove relevant to issues pertaining to your divorce.

In the Davis case, Edgar K. Davis disagreed with that his former wife’s inheritance was immune from equitable distribution.  Although other issues existed within the case, it appears that the court found Barbara A. Davis’ testimony more credible than Edgar’s.

First, the background of this particular case. After almost thirty-four years of marriage, Barbara filed for divorce. When the couple married in 1982, Barbara was 39; Edgar was 53. Both parties have children from previous marriages.

When Barbara’s daughter died in 2010, she received $162,000 in life insurance proceeds and some other assets as her daughter’s sole beneficiary. Barbara deposited the insurance money in their joint checking account. Subsequently, Barbara wrote checks from the account to take care of her daughter’s outstanding financial obligations. Additionally, Barbara used the money to pay for her late daughter’s funeral.

In the meantime, Edgar and Barbara decided to purchase a mobile home in New Jersey. At the time, they owned a home in Pennsylvania. Instead of waiting for the house in Pennsylvania to sell, Barbara agreed to use $99,000 of the insurance money to buy the new home.

Ultimately, the couple deposited the proceeds of the sale from the Pennsylvania house into their joint checking account. During the divorce trial, Barbara relayed a conversation she had with Edgar concerning the funds.

According to Barbara, she and Edgar agreed that she was entitled to reimbursement for the money used to purchase the mobile home. Therefore, after settlement on the Pennsylvania home, Barbara withdrew $100,000 and put it into a Certificate of Deposit.  

Wife Opened CD Account

When Barbara deposited money in the CD, she did so in her name alone in the amount of $154,995.95. During testimony, Barbara did not recall why she opened the CD in that amount when the life insurance policy was for $162,000.

Notably, the record goes on to say that Barbara withdrew $110,000 from the joint checking account. There is also no explanation reflecting where the difference between either $100,000 or $110,000 and the nearly $155,000 came from as far as the deposit.

When it was his turn to testify, Edgar said he had no knowledge that Barbara had a CD with so much money in her name alone. He further alleged that he would sometimes notice money missing. According to Edgar, Barbara told him he didn’t have to tell him anything.

As far as the life insurance proceeds, Edgar claimed he thought Barbara took out the money to put towards their retirement.

Barbara disputed Edgar’s assertions and informed the court that her husband had access to the bank statements at all times.

At the trial court level, the judge found that Barbara’s testimony regarding the life insurance proceeds was “particularly credible.”  In contrast, Edgar’s testimony was “replete with numerous failures to recall any specifics,” and that it was “somewhat evasive and lacked detail.” In summary, the judge found Edgar to be inconsistent.

Meanwhile, the court did not think that Edgar was intentionally deceptive. It was just that he simply “had a very poor accuracy of recollection.”

At the conclusion of the divorce trial, the court ruled that the net proceeds from the estate of Barbara’s daughter were exempt from equitable distribution. This included the CD transfer Barbara made in her own name.

Husband Claimed Money Became Marital Asset

Edgar disputed the court’s findings as far as the credibility issues. Additionally, he claimed that Barbara intended the property to be marital assets and questioned the court’s determination as far as the date assigned to its valuation.

Upon review, the Appellate Division deferred to the trial court as the factfinder. It agreed with the lower court’s ruling as far as credibility and factual determinations.

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Equitable distribution remains a very critical part of every divorce matter. The Law Offices of Sam Stoia works with clients to determine what assets are subject to division. Contact our office to discuss the particulars of your legal issue.

Is There an Inheritance Exemption When It Comes to Divorce?