When New Jersey couples divorce or dissolve a civil union, the court divides their marital property in an “equitable”—that is, fair—manner. But money or property that was inherited by just one spouse isn’t usually considered marital property, so it isn’t divided at divorce. (For more about how judges decide what's fair, see Equitable Distribution in New Jersey.)
Marital and Separate Property
Everything divorcing spouses own must be classified as either marital property or separate property.
Marital property includes assets (and debts) that were acquired during the marriage, by either spouse or by both of them together. (There are some important exceptions, discussed next.)
Separate property includes assets that either spouse acquired before the marriage, and:
- assets inherited by just one spouse during the marriage
- assets received by just one spouse as a gift from a third party during the marriage
So, for example, if a husband inherits $100,000 from his uncle, that money is his separate property. It would not be considered marital property if he and his wife later divorced. (N.J. Stat. Ann. sec. 2A:34-23.)
How Separate Property Becomes Marital Property
It’s common for assets to start out as separate property but change (“transmute”) into marital property, or vice versa, during a marriage. This can happen in several ways:
Adding a spouse to the title. If, for example, a married man inherits a house by himself and then later adds his wife to the title, the home becomes martial property. If they divorce, it would be subject to equitable distribution.
Contributing marital assets. Even if title to a particular asset stays in just one spouse’s name, an increase in its value of the house might be marital property. For example, if a wife contributes to mortgage payments or remodeling costs for a house that her husband inherited and kept in his name only, the increase in value would probably be a marital asset.
Mixing assets. If a wife inherits $10,000 from her aunt and deposits the money into a joint checking account with her husband, it will be impossible to tell, given that money is deposited and taken out all the time, what portion of the account funds are her separate property. Similarly, if she deposits marital assets into the account with the inheritance, the whole thing would probably be considered a marital asset at divorce. Mixing funds together in this way is often called “commingling” them.
Using separate funds to buy marital assets. If, for example, one spouse spends an inheritance to buy a house that the couple puts in both names, the separate asset turns into a marital asset.
Keeping Separate Property Separate
As long as separate property is carefully kept separate, it belongs only to the spouse who originally owned it. For example, if a married woman inherits $50,000 from her grandmother and puts the money into a bank account that’s held in her name only, the money is clearly her separate property. And as the money grows in the account, the increase in value is also her separate property. If she bought a fancy sports car with some of the money, and took title to the car in her own name, the car would also be her separate property.
Another way to make it clear that some of a spouse’s assets are separate is to draw up and sign a prenuptial agreement before getting married. So if one spouse has a large inheritance and wants to keep it separate, a prenup could show that both spouses agree to this plan.
Proving Assets Are Separate
A spouse who claims to own inherited separate property at divorce is separate will have to prove it. It will be necessary to trace ownership of the asset, to show that it was never mixed with marital assets. That’s possible if the spouse was meticulous about keeping the asset separate, but many couples aren’t that careful.
If you ever mixed your inheritance with joint funds—perhaps you deposited a check into a joint account for a few days, to give you time to open a separate account—a court might consider them marital funds. You would have to argue that you put the money in the joint account only to keep the money safe for a short time, and that you did not intend to ever treat the money as a marital asset.
If You and Your Spouse Disagree
Distinguishing marital property from separate property can be complicated. If you and your spouse disagree about which assets are separate and which are marital, ask an experienced local attorney for advice.