Q: I make yearly gifts to my adult sons, and they are also my heirs. They’re both married. But what if they get divorced? Does New York law let me protect what I give them from their spouses? -- RO, via email
A: Lawyers and tax accountants say they get this question all the time. Many people want to make gifts to their children without wondering whether they'll wake up one day to find they've inadvertently enriched a former in-law.
In legal jargon, you'd like your gifts to remain your children's `separate property.'
In a divorce, marital assets are divided regardless of whose name they’re in. But your son-in-law or daughter-in-law has no legal claim on your child’s separate property.
In other words, marital assets are owned by both spouses. `Separate property' belongs only to one spouse.
In New York State, almost everything accumulated during a marriage is a marital asset. Both spouses' earnings are marital assets, for example. Even an educational degree or a professional license is considered a marital asset if it was earned during the marriage. (The degree or license is called `enhanced earning capacity', since it can be expected to boost the recipient's future salary.)
However, four categories of assets are considered separate property even if they were acquired during a marriage.
- Assets the two spouses have agreed in writing -- before or after the marriage -- to treat as separate property. (In other words, anything that is spelled out as separate property in a prenuptial or postnuptial agreement.)
- A recovery in a personal injury lawsuit. If your son was awarded $1 million for injuries sustained in an accident caused by a grossly negligent defendant, that money is his alone.
- The value of a gift or bequest to one spouse at the time it was received.
- Any increase in value of separate property, to the extent that it didn't result from the efforts of either spouse.
Let's say Jane's Mom and Dad give her 100 shares of Google, worth $10,000 on the day she gets married, for example. On the day of her divorce, the shares are worth $60,000. The $10,000 value at the time of the gift is Jane's separate property. The $50,000 increase in value is also Jane's separate property, because the increase wasn't due to the efforts of either spouse.
"But let's say my parents give me a vacant lot worth $10,000, and my wife and I create the best potato farm in Suffolk County on it," says Stephen W. Schlissel, a Garden City, New York matrimonial lawyer. "We're tilling the lot every day and selling potatoes from the best potato stand in America. Although the land around it hasn't increased in value, this lot is worth $1 million when we get divorced. That $990,000 increase in value was due to our efforts during the marriage. It goes into the marital pot."
What if your gift is money rather than shares of stock or real estate? Money, too, is separate property at the time of the gift – but it won’t stay separate property if it’s commingled with money that is a marital asset. If you give your son $50,000 and he deposits it in his bank account where it's commingled with his paychecks, your gift becomes a marital asset, too.
“If you're giving money to your kids," says Schlissel, "my advice is to tell them, `Put this in your own name, and don't add anything to it unless it's also a gift.'"
(c) Lynn Brenner, All Rights Reserved.