4. Can property that is acquired by inheritance be transmuted into marital property?
If a spouse inherits or is gifted any property during a marriage, then that property under New Jersey divorce law is a non-marital asset. This property will remain exempt provided that the inherited property is not transmuted into marital property.
If the gifted or inherited property is placed in co-ownership with the other spouse (checking account, savings account, stock brokerage account, a property deed, car title, etc.), then the gift or inheritance can be deemed to be a gift to the marriage. Therefore, the originally exempt asset can be changed from a non-marital asset to a marital asset.
Your spouse does not get a “piece†of your inheritance. The court cannot and will not divide non-marital property as same is not part of the marriage and is awarded to the party that owns it. However, once again it is important to emphasize that a spouse should keep any of their assets that were acquired by inheritance separate from the marital assets. If an inheritance consists of mutual funds and stocks, then these funds should not be jointly titled in both spouses names. These assets should only be titled in the name of the spouse who received the inheritance.
5. What is the key New Jersey case on the issue of transmutation?
The key case on this issue is Pascale v. Pascale, 274 N.J. Super. 429 (App. Div. 1994). The main doctrine of the Pascale case is that there is a strong presumption that marital property is owned via a joint tenancy, and it can only be overcome by clear and convincing evidence. In the Pascale case, the wife sold her premarital stock that she owned before the marriage. The proceeds were then used to pay for the down payment on the marital home. At the closing, the marital home was deeded in both spouses names. After a long marriage, the parties eventually got divorced. After many years of litigation, the court held that the wife made an inter-spousal gift to her husband. Moreover, the court held that the wife did not retain a separate ownership interest in the proceeds derived from the sale of the stock.
In summary, the Pascale court further held that the parties jointly titled marital home could be classified as entirely marital even though the wife had sold premarital stock and used the $35,000 sale proceeds for the down payment on the home. Under New Jersey case law, the court acknowledged, that property owned by a spouse prior to marriage remains the separate property of that spouse and it is not subject to equitable distribution. However, the court pointed out that inter-spousal gifts are subject to equitable distribution. The court held that the wife’s stock was clearly identifiable as premarital property and that the proceeds of the stock sale were clearly traceable. However, the court held that the testimony of the parties and their standard of living proved the parties did not have any intent to preserve the separate ownership interest of the proceeds obtained from the sale of the stock.
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