For tax purposes, inheritance is generally a gift. Initially, an inheritance usually has no tax consequences, unless it is very valuable. If the donee, or the person who receives the gift, sells or transfers the property later, the donee might be liable for capital gains taxes. Basis, or the benchmark for determining capital gains, is different with regard to inherited property. But we digress. For divorce purposes, a Texas inheritance is a gift, according to the Texas Family Code. The property exclusively belongs to the donee.
However, this rule is often not as straightforward as it seems. That’s especially true if the parties did not have a premarital agreement and the marriage lasted more than about 10 years. So, it’s a mistake for non-donee spouses to automatically assume they have no legal claim to the property at issue. An asset division attorney in Dallas should always evaluate your case to determine your rights and obligations.
Once upon a time, only super-rich couples bothered with premarital agreements. But the law is much more certain and streamlined than it was before. Therefore, if you have been married before or have any sizable asset to protect, like a retirement account, you should at least consider a premarital agreement.
Prenups do more than predetermine issues like gift designations, separate property determinations, alimony limits, and other financial matters. These pacts frequently include provisions about inheritance and succession matters.
Generally, Texas judges uphold premarital agreements as long as they are not blatantly one-sided and each spouse had an independent asset division attorney in Dallas throughout the entire process.
As mentioned, if donees transfer gifts, they could incur a tax liability. A similar issue often arises in divorce matters.
Assume that, shortly after the couple’s wedding, the wife uses a gift from her parents to invest in the stock market. The money is clearly a gift, which makes it the wife’s separate property.
The certificates themselves are another matter. Since the property was acquired during the marriage, the husband could argue that they are community property which is presumptively subject to a 50-50 division. The wife has an equally compelling argument that the stock certificates are separate property because they are, in effect, an indirect gift from her parents.
Making matters even more complex, large purchases often involve multiple funding sources, including loans from third parties. Usually, attorneys partner with forensic accountants in this area to determine ownership.
This issue is similar to the tracing problem discussed above. Assume the wife inherited a rent house prior to the marriage. Since the house needed work, it was vacant. For several months, the husband spent his weekends, and a substantial portion of his paycheck, fixing up the house. When the couple divorces, the house is continually rented, often for above market value.
Depending on the facts, the rent house could be the wife’s separate property, community property subject to division, or the husband’s separate property.
The before-and-after condition of the house might be the biggest issue. If the house was dilapidated and not up to code before the husband rolled up his sleeves, he has a good case for total ownership or at least a community property division. However, if the husband simply made the house more marketable, perhaps by installing new floors, his case is weaker. The number of community funds he expended, the money from his paycheck is community property, which could be an issue as well.
Incidentally, the division includes not only the property itself but also all past and future rental income, as well as all past and future expenses.
Connect with a Compassionate Attorney
Inherited property is generally, but not always, separate property. For a confidential consultation with an experienced divorce lawyer in Fort Worth, contact Orsinger, Nelson, Downing & Anderson, LLP by calling (214) 273-2400. We have several offices throughout North Texas.