Many people believe that if property, including real estate, collectibles, and/or cash, if given to them as a gift or through inheritance, are separate property not capable of division in a divorce. While that may be true in some instances, certain actions taken by the recipient of the property can transform such premarital or inherited property into a martial asset subject to division in divorce. A classic example of this situation is as follows:
John and Jane marry. Prior to the parties’ marriage, John and Jane look for a home. The happy couple find the “perfect” home to settle into and raise a family. Eager to begin their new life together, John purchases the home using premarital funds he has saved as a down payment on the home. There are many ways that John’s actions can turn this premarital asset into a marital asset. For purposes of this article, we will discuss the two most common ways.
Transfer of Title: During the course of the parties’ marriage, John transfers title of the home from himself only to himself and Jane jointly. The act of placing Jane on title to the home, manifests John’s intent to make the home a gift to the marital unit. By doing so, John has made the home an asset that is divisible in divorce. John has an argument that the down payment of premarital funds remains his separate, premarital asset – and most courts would likely agree, if John can affirmatively show such funds were, in fact, premarital. If the house is sold, the net proceeds of the home will be divided equitably between the parties, less John’s down payment.
The same type of transfer can occur when one spouse places the other spouse on an account, such as a retirement account, which holds premarital or inherited funds. Jane has a retirement account (IRA, 401(k), etc.) which contains inherited funds from her mother. Although this account was titled solely in Jane’s name before the marriage, Jane decides to include John’s name on the account. Jane’s simple act of placing John’s name on the account has arguably transformed her inherited funds into a marital asset. Other factors certainly come into play, such as: did the parties individually or separately remove funds? For what purpose were the funds used? How long has John been named on the account? These are just a few considerations when determining whether the account should be considered a marital or nonmarital asset.
In the legal world, this transmutation of premarital property into marital property is called a “Lerch transformation” or “Lerch analysis” after the Georgia Supreme Court case of Lerch v. Lerch, 278 Ga. 885 (2005).
Property Improvements: The second most common way to transform a premarital asset of real property is by improvements made to the property. John has not included Jane’s name on title. However, since married, John and Jane, or either party in their individual capacity, have used marital funds to remodel the kitchen. As a result, the value of the property has substantially increased. Although John never included Jane on title to the home, the increased value of the home becomes marital property. Note that it does not matter that either John or Jane remodeled the kitchen using their own funds – inherited or otherwise. If the value of the home has increased by efforts of one or both parties during the marriage, the increased value becomes marital property subject to division. By contrast, if the value of the home has increased only by market forces and not by efforts of the parties, then such increased value does not become marital property.
As a final example, Jane uses some of her mother’s inheritance to purchase furniture for the home, with the intent that the furniture be used for the benefit of the family. It is arguable then that Jane’s purchase of this property is a gift to the marital unit, despite Jane’s use of inherited funds to make the purchase. The furniture has taken on a marital component, which could now be considered an asset of the parties.
The above types of transfers tend to be the most common ways that premarital property is converted into a marital asset. Consider speaking to a divorce professional to determine what, if any, premarital assets will be considered a part of the marital unit in your divorce action.
April Stancliff has been a dedicated legal professional in the Family Law and Criminal Defense communities since 2012. In addition to her family law practice, April represents individuals in various criminal matters ranging from small misdemeanors to larger felony offenses.