Case Study: What Happens to Inherited or Gifted Property in a Colorado Divorce?
Prior to getting married, Casey and Cameron each owned their own house. Cameron inherited his house from his parents when they passed away in a boating accident. In anticipation of the wedding, Casey sold her home and moved into Cameron's place. Casey deposited the sales proceeds from her house into an individual savings account. Two years after they got married, Casey and Cameron refinanced the house for a better interest rate and in the process changed the title so that they held the property as joint tenants. Five years into the marriage, Casey received a $10,000 gift from her grandparents (who are alive and well living in Florida). She used this money to pay for a new garage door and repairs to the redwood deck. Casey and Cameron are getting divorced. Cameron's lawyer tells Casey that the house belongs entirely to Cameron because he inherited it. What rules apply to the division of a) Casey's savings account b) the house Cameron inherited from his parents and c)the $10,000 gift from Casey's grandparents?
Property acquired prior to marriage is considered separate property. So, Casey's savings account remains hers alone and it is not subject to division in the divorce. Any increase in the value of her separate property that occurs during the marriage (i.e. interest earned on the savings account) will be marital property. But the principal balance remains separate. That said, nothing prevents the Court from giving more of the marital property to the spouse who lacks separate property, if it sees fit to do so. The law calls for equitable distribution. "Equitable" does not necessarily mean equal. The Court may also consider each spouse's separate property, if any, in determining spousal maintenance (i.e. alimony).
By contrast, Cameron's house will be treated as marital property. If one spouse causes the other spouse to be added to the title as a joint owner, then a gift is presumed to have been made and the burden to prove otherwise is on the donor. Even if Cameron explains that the house was retitled in joint tenancy at the request of the mortgage company in order to get the refinancing, it will mostly likely be treated as marital. The desire to get a lower mortgage rate merely provides a reason why the gift was made. It doesn't overcome the act of making a gift by putting Casey on the title. In re Moncrief, 36 Colo App 140, 535 P. 2d 1137 (1975). Once again, the Court may still award Cameron a larger share of the house, if the Court decides that this would be equitable.
Finally, let's consider Casey's $10,000 gift from her grandparents. It was received during the marriage, so it would be marital property, but for the application of §14-10-113(2). This provision creates a category of "separate" property that is received during the marriage by "gift, bequest, devise or descent." Thus, initially, Casey's $10,000 gift from her grandparents was hers alone. However, when she decided to spend the $10,000 on improvements to the marital home, she probably made a gift of that amount to her spouse.
The final analysis: if you share property during the marriage, you can't take it back during the divorce. To avoid any confusion regarding separate property, you must literally keep it separate.
