Generally, Michigan courts consider assets you inherited as your separate property, and therefore not subject to division during a divorce. However, this rule is not absolute. Courts can “invade” or divide your separate inheritance if your ex-spouse contributed to its growth, such as by managing the portfolio or renovating the inherited cottage. The court may also award them a portion of your inheritance if the assets awarded to your ex-spouse are not enough to support them after the divorce.
When separate property gains value
To determine if your spouse gets a share of your inheritance’s value appreciation, the court will first consider the cause of that growth:
- Passive appreciation: In many cases, value goes up due to forces or circumstances outside of your control. If your stocks rose simply because the market is doing well, that gain is likely yours alone. This also applies if your real estate value went up due to normal market trends.
- Active appreciation: This happens when you or your spouse put work or money into the asset. Did you use joint savings to fix up a cottage? Did your spouse manage your investments? If so, the court may consider that extra value as shared property.
Distinguishing between these two types of asset value growth is often a major point of contention in divorces, especially if they involve complex assets or portfolios.
The risks of commingling assets
When you mix your inheritance with marital assets, also known as “commingling,” it can jeopardize your ownership. This happens often with real estate. If you use your inheritance to make a down payment on a house, but you put both your names on the deed, the court often assumes you intended that money as a gift to the marriage.
Tracing is a forensic process used to track the history of an asset. While it can prove that the funds originally came from your inheritance, there is no guarantee that it will be enough to overcome the legal presumption that the money was a gift. An attorney can help you gather the additional evidence needed to prove you intended to keep those funds separate.
Secure your financial future
Protecting your inheritance may require analyzing how those assets lived and evolved during your marriage. If you are worried about how the divorce will affect your separate property, seeking experienced legal advice can help.