One of the most potentially contentious issues in a divorce is the division of property. Michigan, like many other states, typically follows the principle of equitable distribution, which treats the property that either spouse acquires during the marriage as being jointly owned. A notable exception is property that was individually inherited or gifted. However, this is not a hard and fast rule.
The following are circumstances in which inherited or gifted property can be considered marital property for purposes of asset division:
- Commingling — This occurs when you mix your inherited or gifted property with marital assets, making it difficult to distinguish the source of the property. This can occur by depositing inherited funds into a joint bank account, using them to purchase a marital home or investing them in joint assets.
- Transmutation — This comes into play when you and your spouse take actions to change the character of inherited or gifted property. For example, you might jointly use the inherited funds to make significant improvements to the marital home. Or you might use the funds to pay off marital debts..
- Gifting to the marriage — In some cases, you may receive an inheritance or gift during the course of your marriage and decide to use it for the benefit of the marriage itself. This is sometimes done by the parties entering an agreement that essentially gives the property over to both spouses.
- Passive appreciation — There may be an increase in value of inherited or gifted property due to factors beyond your control, such as market appreciation. In Michigan, the increase in value that occurs during the marriage may be considered marital property subject to division, while the original inheritance or gift retains its separate status.
- Active involvement — If you or your spouse actively manage or contribute to the increase in value of inherited or gifted property during your marriage, the portion of the increase in value that can be attributed to these active efforts may be subject to division.
To protect your inherited or gifted property, it’s advisable to keep meticulous records and, when in doubt, seek legal guidance. It may be wise to have your spouse sign a postnuptial agreement declaring that the property is yours alone and will not be divided should you divorce. Consulting with an experienced Michigan divorce attorney is often the best course of action to ensure your property interests will be protected.
Dawson Family Law, PLCC has wide experience dealing with legal issues involving divorce and inheritance in Michigan. Call me at 833-671-4445 or contact me online to set up a free consultation at my Sterling Heights office.