Division of Property
In a dissolution of marriage, there are two different categories of property: marital and nonmarital (also referred to as separate property). In general, property that one spouse acquires by gift (or bequest, devise, or descent), is considered nonmarital property, regardless of whether it was acquired prior to or during the marriage. This means that gifts, ordinarily, are not taken into consideration for purposes of an equitable division of property, as the court can only divide marital property. Colorado law views inheritances as gifts.
However, gifts can lose their nonmarital status and become marital property. This may occur through commingling, change of title, or a subsequent gifting. Commingling occurs when separate property becomes mixed with marital property, such that the separate property is so intertwined with the marital property that one can no longer discern its separate character. For example, if you receive a $25,000 cash gift from your parents (either before or during the marriage), but you then deposit or transfer that $25,000 into your joint bank account titled in both you and your spouse’s name that currently has $5,000. Then, through the years of marriage, both you and your spouse continuously deposit and withdraw money from the joint account. Eventually, unless you have kept an extremely detailed accounting, it will be impossible to tell what money was from your nonmarital gift. When commingling occurs, the other spouse has the ability to assert that all of the funds within this joint account, even though initially comprised mostly of nonmarital funds, are marital and subject to equitable distribution at divorce.
Conversely, when it comes to gifts from one spouse to the other, there exists a presumption that such gifts are marital property. The presumption does not apply, however, to “gifts of nonbusiness tangible personal property.” § 14-10-113(7)(a), C.R.S. Types of these gifts include furs, rings (including the engagement ring), artwork, and other tangible personal property gifts. For gifts under this category, the property is considered the nonmarital property of the recipient spouse (the spouse that received the gift from the other spouse). Additionally, when the presumption applies, i.e., when the property at issue is not a gift of “nonbusiness tangible personal property,” the presumption can only be overcome by “clear and convincing evidence;” otherwise, it is marital property.
What about joint gifts? If your spouse and you received joint gifts during the marriage, such as wedding presents, there is no assumption that gifts from the wife’s family and friends belong to the wife or that gifts from the husband’s family and friends belong to the husband. This very well may be the most equitable way to divide these types of gifts; however, there is no hard and fast rule.
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Child Support and Gifts
While Colorado law regarding gifts and inheritances for division of property can be relatively straightforward, it can be much more complex for determining a spouse’s income for purposes of child support. In fact, the court is not required to consider gifts for purposes of determining a spouse’s income for child support purposes, unless the gift is regularly received from a dependable source. In re Marriage of Nimmo, 891 P.2d 1002 (Colo. 1995). Future gifts, in order to be considered as income, cannot be speculative whatsoever.
If, however, you or your spouse is to receive a one-time gift in the future, such as an inheritance or winning the lottery, the court may include the gift in the calculation of income for the year in which the gift will be received. In re A.M.D. (Casteel v. Davidson), 78 P.3d 741 (Colo. 2003). The court also has a few options in deciding how to apply this type of gift, particularly regarding interest accrued from the gift, in years subsequent to the one-time payment. See In re Marriage of Bohn, 8 P.3d 539 (Colo. App. 2000) (holding that the imputation of investment income is not automatic and only applies if a spouse invests a portion of the funds, in which case income from interest could be used as the spouse’s income); In re Marriage of Laughlin, 932 P.2d 858 (Colo. App. 1997) (holding that gross income for child support purposes can include the amount of income an asset could “reasonably” be expected to generate, even if that asset had been consumed prior to the determination of child support); In re Marriage of Bregar, 952 P.2d 783 (Colo. App. 1997) (holding that if income is imputed as a result of a large, one-time payment, the net amount received, after payment of taxes, should be used).
While perhaps not the most common example (even though we all may wish it were), lottery winnings are helpful in explaining the complexity further. “Monetary gifts,” in general, are included within the definition of “gross income” for purposes of child support. There is a narrow exclusion for lottery winnings, but the vast majority of the lottery winnings will be considered in calculating a spouse’s income. Where lottery winnings are paid out in equal periodic installments (such as monthly), the appropriate manner for including them as income will typically be the same, i.e., monthly. In re Marriage of McCord, 910 P.2d 85 (Colo. App. 1995). But, when lottery winnings are to be paid in a lump sum, a Colorado court has indicated that child support may be calculated by including the entire winnings in the spouse’s income for the year in which the lump sum was received, without deduction for tax withholding. In re Marriage of Bohn, 8 P.3d 539 (Colo. App. 2000). A court then has the aforementioned variety of options in how to assess the spouse’s future income.
Dealing with inheritances can be a bit trickier. The definition of income in section 14-10-115(5)(a)(1), C.R.S., does not include “inheritance,” but the statute specifically includes “monetary gifts” as income, and the Colorado Supreme Court has concluded that monetary inheritances fall within this definition. In re A.M.D. (Casteel v. Davidson), 78 P.3d 741 (Colo. 2003). “Monetary” inheritances include cash or “[a]ssets that can be easily converted to cash,” such as money markets, mutual funds, stocks, and bonds. If an inheritance is “monetary,” then, before the court can include the inheritance as income, it must examine the recipient spouse’s use of the money. If the recipient spouse uses the principal as a source of income to meet existing living expenses or to increase their standard of living, the expended principal should be included as gross income. On the other hand, if the spouse saves or invests the monetary inheritance, such reserved principal is not included in gross income, but the interest generated by the principal is considered income.
While gifts can be relatively straightforward for purposes of division of property, it is not overly difficult to convert something from what was once nonmarital property to marital property. More importantly, gifts can be quite complicated when it comes to determining a spouse’s income. To discuss any potential issues you may have regarding gifts, speak with an attorney at Divorce Matters®. To schedule your consultation, call 720-408-7469.