Are Inheritances Subject to Equitable Distribution?

When a couple gets divorced, their marital assets are divided in a process called equitable distribution. This property usually includes all assets acquired during the marriage, regardless of which spouse actually owns or purchased them. For example, if a spouse buys furniture for the marital home, it may be subject to equitable distribution since it was bought during the marriage. However, it can be a gray area when considering how and if inheritances are subject to equitable distribution in divorce.

Usually, inheritances are considered separate property. That means, in divorce, they may still belong to the original spouse who made the inheritance. However, there are certain instances when inheritances may be considered marital assets. New York uses certain guidelines in determining if inheritances are subject to equitable distribution in divorce.

Commingling and Transmuting

Assets that are inherited by one spouse and somehow mixed in with marital assets may become marital assets. One instance in which an inheritance can become a marital asset is through commingling. If a spouse acquires a cash inheritance, and deposits the inheritance in a joint bank account with marital money, this constitutes commingling. Commingling the inheritance with marital funds can cause the inheritance to become a marital asset.  Another instance in which an inheritance can become a marital asset is through transmutation. Transmutation may occur when an inherited asset’s title is changed from sole ownership to joint ownership with a spouse. This often happens when real estate is inherited.

Appreciation of Inheritances

In New York State, the appreciation of inherited assets remains separate property. There are two types of appreciation- passive and active. Passive appreciation remains separate property since it assumes that the other spouse had no part in creating the increased value of the asset. Conversely, active appreciation occurs when a spouse somehow participates in creating the increase in the asset’s value.