One of the most common topics litigated in a divorce is asset distribution. Typically, the parties to a divorce keep their separate property and split their marital property. Even though the general rule sounds simple, it can become very complicated.
Inherited property can cause many obstacles in a divorce proceeding. Normally, property that is inherited is not subjected to the division of property in a divorce proceeding because, by law, the inheritance is the property of the spouse who received it. However, there are some exceptions to the rule.
When the separate or sole property is used for the common benefit of the parties during their marriage then the property is subject to division during a divorce. Therefore, in order to ensure that the inherited property is not subject to division among a divorce proceeding, one should:
- Keep all inherited property completely detached from the marital property.
- Do not use inherited property for the benefit of the marriage.
The intricacy of inherited property is exemplified in a divorce case that arose out of Jefferson County, Alabama, in the case of Bentley v. Bentley. This case illustrates an exception to the normal rule concerning inherited property and the division of marital property.
In the case at hand, the parties were married in 2001. In 2014, the wife filed for divorce. The trial court entered an order divided the parties’ properties. During the marriage, the husband’s father created a family partnership as a vehicle to transfer assets to the husband and his two brothers.
The partnership income, in regards to the husband’s share, was reported on the parties’ joint income taxes. However, the husband never received any distributions of funds or assets from the partnership. The trial court awarded the wife $300,00 from the husband’s interest in the partnership. Accordingly, the husband appealed, and the wife cross-appealed.
The husband contended the trial court erred in granting the award of $300,000 to the wife of his interest in the partnership. The husband argued that his partnership was not part of the marital estate because he had inherited it. Pursuant to Code of Alabama, 1975, § 30-2-51(a), inherited property can still be taken into account if “that property, or income produced by property, has been used for the common benefit of the parties during their marriage.” Here, the wife furthered that the partnership generated income from the interest and dividends, which were reported on the parties’ joint tax returns and should be considered part of the marital estate.
Previously, the Court of Civil Appeals held in Kreitzberg v. Kreitzberg, that separate property which creates tax liabilities is not enough to support a conclusion that the separate property was used for the common benefit of the marriage. Kreitzberg v. Kreitzberg, 80 So. 3d 925, 931-32 (Ala. Civ. App. 2011). However, this case is unlike Kreitzberg v. Kreitzberg. In the case at hand, both of the parties testified that they treated the husband’s interest in the partnership as part of their retirement plan and had foregone other retirement planning activities because of it.
The appellate court concluded that although the parties received no distribution from the partnership during the marriage, the evidence would support the trial court’s finding that the parties’ agreed to consider the husband’s interest in the partnership as part of their retirement and that the separate property was used for the common benefit of the marriage. Therefore, the husband’s interest in the partnership is subject to division among the parties.
I am not sure this case was decided correctly. Inherited property should not be considered part of a martial estate.
If you are considering divorce and need help with determining martial assets, contact Birmingham divorce attorney Joseph A. Ingram or Ingram Law LLC, at (205) 656-0044.