Is inheritance marital property in NY?

In the intricate landscape of New York matrimonial law, few questions provoke more confusion, emotional tension, and litigation than whether inheritance is considered marital property. This issue generally arises during divorce proceedings when one spouse has received a significant inheritance either before or during the marriage, and the other spouse seeks a share of those assets. The answer is rarely straightforward. 

If you’re contemplating a divorce, you should be cautious and well-informed when dealing with inherited property, as the legal and financial consequences can be profound. Get legal assistance from a divorce lawyer in New York to pursue a strategic approach to asset protection during property division.

New York’s Equitable Distribution System: The Basics

Unlike community property states, New York follows an equitable distribution model, codified under Domestic Relations Law § 236(B). This means that marital property is divided fairly, but not necessarily equally, between spouses upon divorce. 

“Equitable” doesn’t imply a 50/50 split but rather a distribution that considers multiple statutory factors, including each spouse’s income, age, health, contributions to the marriage, and future earning potential.

Separate vs. Marital Property: Where Inheritance Begins

Under New York law, property acquired before the marriage, or acquired by gift or inheritance at any time (including during the marriage), is classified as separate property. This legal principle is clearly stated in DRL § 236(B)(1)(d), which defines separate property to include:

• Property acquired before marriage
• Property acquired by bequest, devise, or descent (i.e., inheritance)
• Personal injury compensation
• Property described as separate in a prenuptial or postnuptial agreement
• Appreciation in the value of separate property not due to the efforts of the other spouse

Therefore, in its original form, an inheritance, whether it’s a house, bank account, family business interest, or trust distribution, isn’t subject to equitable distribution in a New York divorce. However, this line is generally blurred in practice, particularly when the inheritance has been commingled or used to support the marital unit.

When Is Inheritance Considered Marital Property: Key Legal Doctrines in New York

While inherited property begins as separate, how it’s treated during the marriage can transform it into partially or even wholly marital. New York courts have developed several legal doctrines that govern this transformation:

Commingling of Assets

Commingling occurs when the inheritor mixes inherited funds (separate funds) with joint marital assets. The most common examples include:

• Depositing inherited cash into a joint bank account
• Using inherited money to renovate the marital home
• Paying down a joint mortgage with inherited funds
• Retitling inherited property into both spouses’ names

In these situations, the separate character of the inheritance may be lost. Courts often interpret such actions as an intent to treat the inheritance as marital. Once the asset is commingled and cannot be traced, it may be fully subject to equitable distribution.

Transmutation

Transmutation refers to the intentional change of the legal character of property from separate to marital. A classic example is when one spouse inherits a vacation home and later deeds it to both spouses as tenants by the entirety. This retitling is often seen as conclusive evidence of intent to make the property marital.

Even if only part of the inheritance was used jointly, courts can award the non-inheriting spouse a partial interest based on contributions, such as paying taxes, making improvements, or managing the asset.

Active Appreciation Due to Marital Efforts

Under Mahoney-Buntzman v. Buntzman, 12 N.Y.3d 415 (2009), and its progeny, New York courts distinguish between passive and active appreciation of separate property. Passive growth, such as an increase in stock value or real estate due to market conditions, remains separate.

However, if the appreciation is due to the direct or indirect contributions of the non-titled spouse, that increase may be subject to equitable distribution. For example, if a spouse inherits a business and the other spouse works in the business without pay or takes care of the home to enable the business owner to grow the company, the marital portion of the business’s appreciation may be divided.

Complexities in Trust-Based Inheritance

Inheritance through trusts adds a layer of legal complexity. If a beneficiary spouse receives income or distributions from a discretionary or irrevocable trust, that income could be considered separate property so long as it isn’t commingled. However, if trust income is regularly used for family expenses or deposited into joint accounts, a court may award an equitable share of those funds to the other spouse.

If the beneficiary has control over the trust (e.g., acts as trustee), courts may scrutinize whether the trust is a true separate source or a financial vehicle that benefits the marital estate.

Protecting Inheritance: Best Practices for Maintaining Separate Status in New York

Given the legal risks of losing the separate character of inherited assets, proactive steps are essential. Here are several strategies that are highly recommended by divorce professionals:

Keep Inherited Assets in a Separate Account

Don’t deposit inherited cash into a joint bank account. Maintain a dedicated account in your name only, and avoid using those funds for marital purposes.

Don’t Retitle Property

If you inherit real estate or vehicles, keep them in your name alone. Adding your spouse to the title can be interpreted as a gift, thereby converting the property into marital property.

Sign a Prenuptial or Postnuptial Agreement

A prenuptial agreement can explicitly define inherited or expected inherited property as separate, protecting it from future claims. Even after marriage, a postnuptial agreement can accomplish similar protections.

Keep Records and Tracing Documents

If litigation arises, the burden is on the inheriting spouse to prove the separate nature of the inheritance. Keep a clear paper trail of:

• The original will or trust
• Account statements showing receipt of funds
• Any property deeds or retitling documents
• Invoices showing exclusive use for non-marital purposes

Example Scenario

Consider this hypothetical: Jane inherits $500,000 from her grandmother during her marriage. She places the funds into her individual savings account. Years later, she uses $200,000 of that money as the downpayment on a  jointly owned marital home.

At divorce, Jane may lose the $200,000 separate property contribution credit unless she can trace the funds and prove they were  maintained as separate. 

Protect Your Legacy with Strong Legal Support from Our New York Divorce Attorneys

For anyone expecting to inherit significant wealth or who has already received inherited assets, proactive legal planning is essential. A carefully drafted prenuptial or postnuptial agreement, rigorous asset tracking, and financial discipline can make the difference between retaining your inheritance or seeing it divided in court.

If you’ve received or expect to receive an inheritance and are concerned about how it may be handled in a divorce, don’t leave it to chance. Speak with our experienced New York divorce lawyers who understand the intricate relationship between separate property and equitable distribution. At Petroske Riezenman & Meyers, we help clients safeguard their separate property and resolve complex asset division issues with strategic foresight. To schedule your free and confidential consultation, call us at (631) 337-1977 or contact us online.