How Are Inherited Assets Treated in Equitable Distribution During A Divorce?

One of the more complex issues we see when addressing equitable distribution relates to inherited assets and the money (distributions, investment experience, interest, etc.) that emanates from them. Under New Jersey law, inherited assets remain the exempt, separate property of the spouse who inherited same. It cannot be distributed in whole or in part to the other spouse in the event of a divorce. See N.J.S.A. 2A:34-23(h).

However, there is an exception to every rule. If an asset is commingled with a marital asset, then it loses its exempt character. For example, if a husband received $50,000 from an inheritance and he deposited into the joint bank account he shares with his wife, then that inherited money is no longer exempt because it was commingled with a marital asset. By commingling the funds, the husband has lost the clear-cut argument that the inheritance is not to be shared by his wife.

Importantly, even if an inherited asset is immune from equitable distribution, this does not mean it is unavailable for support purposes. A court could consider the existence of the separate, exempt asset, and the income generated therefrom , for purposes of determining appropriate support.

As an example, assume the husband received an inheritance from his parents and opened an account in his name alone in which account he deposited the inheritance. During his marriage to his soon to be ex-wife, the husband deposited monies he received from time to time from the account he had opened to hold the inheritance into accounts he shared with the wife to be used for expenses he shared with his wife. The wife herself held no ownership interest in the husband’s account, but just received distributions from time to time as the husband took these funds from his account. This is the critical fact. While the husband commingled certain funds generated from the account, the wife never obtained an ownership interest, and it remained his separate property. Unfortunately, a trial judge did not agree with the husband, and awarded the ex-wife an interest in the distributions the husband would take from the entity in the future, as and for her equitable distribution of this asset. However, the husband ultimately and correctly prevailed on appeal. The trial judge’s ruling was reversed on appeal and the appellate division agreed with the husband that because his ownership interest in the entity was derived from an inheritance, his interest in that entity and in any income generated from it was not subject to equitable distribution.