In Tennessee, funds or assets inherited constitutes separate property meaning a Court cannot distribute any portion of it to your spouse in a divorce proceeding. This is in contrast to marital property which is any asset acquired during the course of the marriage regardless of how it appears on any title of interest. If you have received an inheritance and wish for it remain separate property, then it is important that you segregate those funds or assets from any joint account or application towards purchase of a marital asset such as a down payment on a home. Otherwise there is a rebuttable legal presumption that you intended to treat it as marital property. Any event of commingling of such funds with marital funds such as a joint checking account will give rise to this presumption. How much separate property a spouse has is a factor for the court to consider in distributing marital property between the parties. See T.C.A. § 36-4-121(c).Thus, if your inheritance is significantly larger than the amount of marital property, then you may get less of the marital property.
The finer point of law for the court to apply in adjudicating separate property upon the even of commingling is if the court is able to trace the funds or asset back to its origin. This is very difficult if a spouse deposits inherited funds into a joint checking account where currency or credit in the account cannot be traced. Another issue for the court to consider is whether the account is jointly held and what was the intent and purpose for designating it as a joint account. This matter arose in the following case.
In 2016, in the matter of Douglas v. Douglas (Tenn. Ct. App. Aug. 8, 2016), the court of appeals heard the question of whether funds inherited by the wife from her deceased father constituted marital property. At the time of trial, the Wells Fargo account had approximately $ 2.4 million dollars. It was not disputed that the husband did not participate in establishing the account which wife decided to set up as a joint account with a right of survivorship in both her and Husband’s names. This was done for estate planning purposes to avoid certain tax consequences and avoiding the process of probate. The wife testified that only she withdrew funds from the account for marital expenses and that her husband never deposited into or withdrew funds from the account. The husband never participated in the management of the account as the wife solely met with the broker. The wife had the husband’s name removed from the account which she said was for tax purposes. The daughter actually signed the husband’s name on the form necessary to remove him from the account without his knowledge. The trial court found that Wife did not intend to gift the funds to the marital estate and that no evidence existed linking husband’s contributions and any appreciation in value of the Account. Husband appealed. Husband challenges the trial court’s final order that the account never transmuted into marital property and remained Wife’s separate property. Husband asserts that wife intended for the money to be a gift to the marital estate. Additionally, husband claimed that the transfer of the money into an account only in wife’s name was procured through fraud, and thus, was ineffective to render it separate property again. The issue for the court of appeals rested on the fact that it was wife’s intent to create a joint account for estate planning purposes only and not as a gift to the marital estate. Hence, when separate property is placed into a joint account, it is only a legal rebuttable presumption that it was intended as a gift to the marital estate. Testimony provided by the wife rebutted that presumption and thus the court of appeals upheld the trial court’s order that the account was separate property. The fact that wife made 5,000.00 withdrawals monthly for family expenses did not demonstrate an intent to treat the account as marital funds. The court went on to say “We think it would be bad policy for a court to hold that a party risks all of his or her separate property by spending some of it for the benefit of his or her family.”
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