Estate Planning for Separate Property
Something that is perfectly appropriate in one setting can be problematic in another. The casual outfit that is perfect for running errands could cost you a coveted job if you wore it to an interview, for instance. And the language used to describe property in your estate plan could, by the same token, cost you that property should you and your spouse later divorce. We certainly hope that divorce is not in your future, but if you came into the marriage with significant assets, or inherit assets during your marriage, you should ask yourself how you would feel about your spouse getting those assets in the event of a divorce. If the answer is, "not very good," you need to think about estate planning for separate property.
To understand separate property, you need to understand how property is divided in a divorce. In Ohio, as in most states, there are categories of property: marital and separate. Marital property is all property, real and personal, that is acquired by either spouse during the marriage, and any interest in such property. Marital property also includes most income or appreciation on separate property that occurred during the marriage due to the contribution of one or both spouses. An example would be if one spouse separately owned a rental property that the non-owner spouse worked to renovate and manage.
Separate property includes property owned by either spouse prior to the marriage; property inherited by one spouse during the marriage; a gift that was made clearly to one spouse; compensation to one spouse for a personal injury they suffered; and passive appreciation or income of any separate property.
Separate property can become marital through commingling. For example, if a husband inherited $10,000 from a relative, that would be separate property. If he then deposited it into the couple's joint bank account, so that it could not be traced back to its source, it would have been commingled with marital property, and thus become marital property
How Estate Planning Can Make Separate Property into Marital Property
If you are married, you might well intend that your spouse inherit the great majority of your property if you die before him or her. But you may not have considered the effect of certain language in your estate planning documents and what that might mean for your separate property if you divorce.
Ohio law states that " ..[T]he holding of title to property by one spouse individually or by both spouses in a form of co-ownership does not determine whether the property is marital property or separate property.” Simple enough. But what courts do consider is something called "donative intent;" in other words, did a spouse intend for their spouse to be an owner of the property? And in evaluating donative intent, one of the things courts consider is how the property is titled.
If a married woman bought a piece of real estate with her separate funds, but she and her spouse both signed the purchase agreement, and the property was titled jointly with her spouse, a court in Ohio could determine (and has, in fact, determined) that she intended it to be marital property.
In another scenario that has passed through the Ohio courts, a husband and his brother inherited property. The husband and his wife moved to the property and bought the brother's interest. The husband and his brother transferred the title to the husband and his wife by survivorship deed. The husband signed the survivorship deed which gave his wife a one-half interest in the property for the express purpose of estate planning. The trial court and appellate court considered this a conversion of separate property to marital property in light of the circumstances, specifically that the husband intended to make an "immediate, voluntary, irrevocable and gratuitous transfer."
Another way in which separate property has been deemed converted into marital property in Ohio is for one spouse to quitclaim his separate property to himself and his wife jointly. In a case where this was done for estate planning purposes, and the husband testified that he intended the property to go to his wife in the event of his death, the court found the necessary "donative intent" to find that the property was marital property.
Plan to Keep Separate Property Separate
There have also been cases in Ohio's appellate courts in which property that was jointly titled was found not to be marital property, based on the facts of those cases which did not show donative intent. The lesson? Understand the possible implications of your estate planning strategy, and if you do not intend property to be treated as marital in the event of a divorce, make sure your attorney knows to make this clear in your documentation.
It may feel uncomfortable taking the prospect of divorce into account in your estate planning, and it might be easier in the moment to ignore that possibility. Remember that taking a possibility into account isn't the same as calling it into reality. Your attorney can help you plan for your family's future security while also taking into account contingencies such as divorce.
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