New York Divorce Lawyer Blog
Receiving an inheritance during a marriage does not necessarily mean that the money will remain yours alone if you later divorce. Although New York generally classifies inherited property as separate property, the way a spouse handles those assets can transform them into marital property that must be divided with the other spouse. A recent New York decision shows the potential consequences of commingling inherited assets: the court upheld the equal division of an investment account containing inherited property after the spouse who received the inheritance failed to prove it remained separate. If you have received an inheritance and are contemplating divorce, speaking with an experienced New York divorce attorney can help you determine whether those assets may be protected from equitable distribution.
History of the Dispute
It is reported that the parties married in 1988 and that the plaintiff commenced an action for divorce and ancillary relief in May 2013. The divorce proceeded to a nonjury trial conducted over nonconsecutive dates in 2016 and 2017. The trial court issued a decision in March 2023, and a judgment of divorce was subsequently entered in March 2024. Among the financial issues addressed in the judgment was the classification and distribution of an investment account into which the defendant had deposited property he inherited during the marriage.
It is reported that the defendant maintained a Scottrade investment account into which he deposited inherited property. Although an inheritance ordinarily constitutes separate property under New York law, the trial court determined that the account was marital property subject to equitable distribution. The court therefore directed that the account be divided equally between the parties. The defendant appealed that determination, arguing that the inherited property should not have been treated as a marital asset.
How New York Law Treats Inherited Property in Divorce
Under Domestic Relations Law § 236(B)(1)(d)(1), proceeds received through an inheritance generally constitute separate property. As a result, inherited property ordinarily is not included among the marital assets divided between spouses when they divorce. The classification of an asset when it is originally acquired, however, does not always determine how that asset will be treated at the end of the marriage.
New York law recognizes that separate property can become marital property when it is commingled with marital assets. The court explained that when separate property is combined with marital property, such as by placing it in an account containing marital funds, a presumption arises that the commingled funds constitute marital property. That presumption can have significant consequences because it shifts the burden to the spouse claiming that the asset should remain separate.
Overcoming the Presumption That Commingled Funds Are Marital
Tracing an asset to an inheritance does not necessarily resolve the issue once the property has been commingled. To overcome the presumption that commingled property is marital property, the spouse asserting a separate property claim must establish by clear and convincing evidence that the funds originated solely as separate property and that the commingling occurred only as a matter of convenience, without any intention of creating a beneficial interest in the other spouse.
Here, the court concluded that the defendant did not satisfy his burden of overcoming the presumption that the disputed investment account was marital property. Although the account contained property that the defendant inherited, the evidence was insufficient to establish that the account retained its separate character after the inherited assets were commingled.
As a result, the court agreed with the trial court that the investment account constituted marital property subject to equitable distribution. It further determined that the trial court properly exercised its discretion by directing that the account be divided equally between the parties. Thus, despite the separate property origins of the assets, the defendant was required to share the account with the plaintiff.
The defendant also asserted that the plaintiff had agreed that the inherited property would remain his separate property. The court rejected this argument as well. Specifically, it found that the defendant failed to demonstrate that he detrimentally relied on the plaintiff’s alleged agreement concerning the separate nature of the inherited assets. Accordingly, the alleged understanding between the spouses did not provide a basis for overturning the trial court’s classification of the account as marital property.
Talk to a Skilled New York Divorce Attorney About Protecting Inherited Assets
If an inheritance or other separate property may become an issue in your divorce, it is important to understand how New York’s equitable distribution laws apply before making decisions that could affect your rights. Ksenia Rudyuk of Rudyuk Law Firm is a skilled New York divorce attorney who can help you assess and protect your financial interests. Contact Rudyuk Law Firm at (212) 706-2001 or complete our online form to schedule a consultation.