The answer to this question is: it depends.
In general, all assets in either party’s name or in which either party has a beneficial interest at the time of the divorce are subject to division in the overall division of the marital estate. However, not all assets or beneficial interests are created equal. Some assets may be subject to division between the spouses as part of the divorce, and some assets may stay with one spouse based upon the nature of that asset and how it was received and held. While there is no specific carve out in Massachusetts for gifted or inherited assets, a spouse can seek to exclude those assets by providing evidence supporting exclusion.
The Appeals Court’s recent decision in Dylan Jones v. Juliana Jones, issued on September 6, 2023, provides further guidance on whether gifted assets received by a party during a marriage are appropriately excluded from the marital estate for purposes of equitable distribution. In that matter, after a long-term marriage of over 19 years, the wife’s interest in an irrevocable trust established by her mother, a piece of real estate gifted to the wife by her mother, and a certificate of deposit gifted to her by her mother were all included in the marital estate for purposes of equitable distribution.
In the Jones matter, the wife’s mother made a variety of financial gifts to the wife during the parties’ marriage, including settling a trust for the wife’s benefit, granting the wife a 99% interest in a limited liability company that held title to the marital home and a 1/3 interest in real property located in Michigan, and gifted substantial funds that were deposited into a certificate of deposit. Based upon the wife’s mother’s financial contributions, the parties were able to live a lifestyle they could not otherwise afford financially and only contributed minimally to retirement and educational accounts for the children… likely due to the wife’s anticipated inheritance and significant gifts received during the marriage.
With respect to the trust, the Court in Jones found that the wife’s interest was a “fixed and enforceable” property right properly includable in the marital estate, notwithstanding the fact that she had not received any distributions and her right to receive distributions was solely in the discretion of the trustee. The trust contained a provision for the wife to receive all of the monies free from the trust at her mother’s death unless the trustee determined that she should not receive those monies due to circumstances existing at the time. The fact that the wife was the sole beneficiary of the trust and that she had the power to appoint the trust corpus to the beneficiaries of her will if she were to die before receiving the mandatory distribution weighed heavily in the Court’s determination that the trust was part of the divisible marital estate. While interests in discretionary trusts are generally treated as too remote for inclusion in the marital estate (because the beneficiary must rely upon the trustee’s exercise of discretion), because of the mandatory distribution clause of this trust (providing that the trustee shall pay to wife the corpus of the trust upon the wife’s mother’s death), the trustee did not actually have the power to divest the wife of her interest in the trust (such as by giving the monies to another beneficiary). Further, the wife’s right to receive the mandatory distribution was enforceable, making the wife’s interest in the trust more than a mere expectancy that may otherwise keep the trust out of the marital estate.
With respect to the Michigan real estate, the Court found that Massachusetts law, not Michigan law, applied when determining how to divide this real estate. Whereas Michigan law provides that the gifted interest in the real estate is separate from the marital estate and not subject to distribution, Massachusetts law provides that the court may assign property owned by either spouse whenever or however acquired, including real property outside of Massachusetts. While the wife’s interest in the Michigan real estate was gifted to her by her mother and kept separate from other marital assets, the Jones Court found that it was reasonable to conclude that the existence of the asset was woven into the fabric of the marriage and enabled a higher standard of living for the parties during the marriage.
The same was true with respect to the certificate of deposit. The Court found that the availability of gifts from the wife’s mother allowed the parties to enjoy an otherwise unaffordable lifestyle and forgo saving for anticipated future expenditures such as college savings or retirement. The Court found that even if the parties did not have occasion during the marriage to draw upon the CD, it was reasonable to conclude that its existence was “woven into the fabric of the marriage,” enabling a higher standard of living for both parties, deeming the asset “marital” for purposes of equitable division.
The moral of the story: whether a beneficial interest in a trust may be included in the marital estate requires a close examination of the particular trust instrument to determine whether the interest is a “fixed and enforceable” property right. For other gifted or inherited property (real, financial, or otherwise), whether the property is includable in the marital estate requires a close examination of whether its existence was “woven into the fabric of the marriage.” Even if the asset was not used and kept separate from the marital estate, if it enabled a higher standard of living for the parties due to the existence of that asset, it may be deemed a divisible marital asset. The Jones decision, coming after a long line of cases defining and curtailing a spouse’s right to gifted or inherited assets of the other spouse, makes clear that gifted and inherited assets can be considered marital assets for purposes of equitable division of the marital estate. It is important to consult with a knowledgeable divorce attorney to determine whether a spouse has any entitlement to assets received during the marriage through gift or inheritance to the other spouse.