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What is the Marital Gift Exception When Going Through a Divorce (For Purposes of Equitable Distribution)?

Going through a divorce can be a difficult and emotional process, especially when it comes time to divide the property that was acquired throughout the marriage. Understandably, many clients want to know how the property will be distributed during the divorce, including, specifically, whether one spouse is entitled to any gifts the other spouse received while married.

The short answer to this question is, maybe…

Like many areas of the law, the answer depends on several factors. North Carolina is an equitable distribution state. This means that all property acquired during a marriage, called marital property, will be divided fairly between both spouses at divorce.

The court will not divide separate property, however. Separate property will remain the property of the original owner.

The question of whether a spouse can keep a particular gift after divorce hinges on whether each gift is considered separate or marital property.

Separate Property Includes Gifts

Per North Carolina Statutes, separate property is property that one spouse acquires before the marriage; one spouse is gifted; or one spouse inherits. Therefore, based on the definition, gifts are separate property. This is true, however, only if the gift is given to the spouse by a third party.

For example, imagine John alone receives a $10,000 gift from a family member while he is married to Mary. If John later divorces, the $10,000 gift would remain his property. The property was gifted to John alone, by a third party, and would be considered separate property not subject to equitable distribution.

(It is important to know, however, that separate property can become marital property. One way this can occur is through the “commingling” of separate and marital property. Commingling in this context is the mixing of funds from one spouse with those of the other spouse. To avoid commingling, it is best to keep separate property, separate. In the example above, if John were to deposit the $10,000 gift into a jointly held bank account with Mary, for example, the court may see this as commingling and the gift would then become marital property subject to equitable distribution.)

The Marital Gift Exception: Marital Gifts are Marital Property

Not all gifts to one spouse are separate property, however, and a “gift” may not really be a gift.

As in so many areas of the law, there is an exception to the general rule in this case. In North Carolina, if one spouse alone receives a gift while married, the gift would be considered separate property (so long as the property has been kept separate and has not become marital property through various methods, including commingling). However, when the gift is given by one spouse to the other spouse during the marriage, the property is considered marital property. These “marital gifts” are not separate property. The court will fairly divide marital gifts along with the rest of the marital property.

Now imagine John gives Mary a piece of jewelry while they are married. Years later the couple makes the decision to divorce. In this example, the gift was clearly made by John to Mary, while married, and therefore, the jewelry will be considered marital property and subject to equitable distribution. John and Mary will both get to keep a portion of the value of the jewelry.

When Marital Gifts Are Considered Separate Property

Once again though, there is an exception to the exception and there are instances when a marital “gift” really is a gift.

If a spouse, when giving a gift to the other spouse, intends for the gift to be separate property and states this intent when gifting the property, the property will remain that of the original owner.

In the example above, if John gives jewelry to Mary, while married, and makes it clear in the conveyance that his intent is for the jewelry to be separate property, the gift would remain Mary’s property at divorce. The jewelry would not be equitably divided so long as Mary can prove John’s intent to the court.

Talk with An Attorney Who Understands the Law

Clearly, equitable distribution in North Carolina is a complex area of law and determining the nature of certain property, including gifts, can be challenging. In a very broad sense, gifts received by one spouse during marriage remain the property of that spouse at divorce unless the gift was a “marital gift”. Even if the gift was a marital gift, if the gifting spouse intends for the gift to be separate property, the property will not be equitably divided. There are exceptions and complicating factors such as commingling of funds, however, and therefore, it is very important to speak with a qualified attorney about your property and whether a “gift” was really a gift. An attorney knowledgeable in family law can provide advice and guidance on the likelihood of proving certain property, including gifts, as marital or separate property.

References

Equitable Distribution. Wex. Cornell Law School. Web. 8 April 2018. https://www.law.cornell.edu/wex/equitable_distribution

“NCGA North Carolina General Assembly.” North Carolina General Statutes Chapter 50: Divorce and Alimony.” NCGA. 8 April 2018. https://www.ncleg.net/EnactedLegislation/Statutes/HTML/BySection/Chapter_50/GS_50-20.html

Commingling. Wex. Cornell Law School. Web. 10 April 2018.

https://www.law.cornell.edu/wex/commingling

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