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Preserve your inheritance as separate property

Vette

Many people make the mistake of turning what would have been their separate property into marital property. Often the person doing this action does not realize what they have done until they are amid a divorce or legal-separation proceeding. If your intention is to keep your inherited property and assets as your separate property, then you should avoid jointly titling it.

In Colorado, if you are married, all property acquired subsequent to the date of your marriage is deemed to be marital property except: property you acquired as a gift or through an inheritance; property acquired in exchange for property you owned before the marriage or property acquired in exchange for property acquired by gift or through an inheritance; property acquired by a spouse after a decree of legal separation; and all property excluded by a valid marital or premarital agreement of the parties. Everything else acquired after the date of your marriage or civil union will be deemed marital property, even if it is solely titled to one spouse and not titled to both parties.

In addition, an element that may serve to complicate matters further is that if separate property of a spouse increases in value over the term of the marriage, the increased value component will also be deemed to be marital property. As an example of this, if you inherit cash in the amount of $100,000 during your marriage, and five years later, you are in a divorce proceeding and the inherited cash is now worth $110,000 because of interest and capital gains, then $10,000 of your inherited money will be deemed to be marital property subject to being divided in the divorce proceeding. If both parties agree that a spouse’s separate property – and increase in value of all separate property – should remain as separate property, then a marital or premarital agreement reflecting such an agreement will be helpful to the separate-property owning spouse in the event of a later dissolution of marriage.

If you receive an inheritance during your marriage and want to preserve the property as your separate property, it is important to keep that property in your sole name. For example, if you inherit a home during your marriage and then later deed the home to yourself and your spouse, the court in a later dissolution proceeding will presume – absent clear and convincing evidence to the contrary – that the act of causing the home to be jointly titled was a gift of the home to the marital estate.

The burden of proving that a gift was not intended would be on the donor spouse. A leading case determined that, even if the transfer was made to avoid inheritance tax, it should be deemed a presumed gift to the marriage. The reason given – to avoid inheritance tax – was deemed to be a reason that the gift was made and not seen as clear and convincing evidence that a gift was not intended.

The same is true for other types of assets; if you inherit stocks and place them into an existing brokerage account held in joint names with your spouse, the court may presume that a gift of the stock to the marital estate was intended. Thus, the manner in which property that would otherwise be considered separate property is held or titled is critical in terms of maintaining the character of the property as separate property.

This area of the law can become quite complex, and this short analysis is not intended to be an exhaustive inquiry into preserving your property as separate property. Direct legal advice about your specific situation is recommended to appropriately preserve your property as separate property.

Nicole Vette is an attorney with the Durango law firm of Anderson & Baker, LLC, which specializes in domestic relationship law. Reach Nicole at nv@andersonbaker.com.



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