Let’s revisit a 2005 divorce action, Idleman vs. Idleman, in which a wife sued her husband’s parents for family support.  Doug Idleman was seriously ill, too sick to work.  His parents generously supported the couple’s lavish lifestyle for the last two years of the marriage. They paid the mortgage on the parties’ $775,000 home in Morris County, the household bills, and tuition for a grandchild’s special education school. Even after Cynthia filed for divorce, her in-laws continued to support the family to the tune of $20,000 a month. Cynthia then moved to bring her in-laws into the case as parties, on the theory that once they volunteered to sustain the parties’ lifestyle, they could not just weigh anchor and leave – even though their son had by that point moved in with them and they had his sickness and related expenses to contend with.

At the time, most legal observers said Cynthia’s claim was creative, but questioned whether it would ever become the law of New Jersey.  Parents who gift monies to their children or their children’s household do not become obligated to keep doing it, even if their child and his spouse have relied upon their generosity.

There are no reported judicial opinions about the Idleman divorce, which means the parties must have settled their disputes out of court.

It was reported that Doug Idleman passed away from his illness earlier this year, at the age of 54.

The idea of an ex-spouse’s parents footing the bills for the other spouse’s post-divorce lifestyle may sound unreasonable, even ludicrous.  However, there is a related legal question that comes up all the time when spouses divorce:  are parental gifts subject to equitable distribution in divorce?

Some parents become financially generous during the parties’ engagement, on the wedding day, or in the early years after. They want their kids to do well, including their new in-law children.  Many times parental generosity takes the form of cash or checks that can be used to purchase a new home and hoped-for residency by future grandchildren, among other reasons.

When the marriage is over, parents often claim the wedding or marital gifts were intended exclusively for their child. This contention is subject to proofs and counter-proofs. Or, they will claim the funds represented an unwritten loan that both parties acknowledged to them orally. Such an agreement, if made, Is enforceable, just not easy to prove and requiring a trip to depositions and the court house — unless the case is settled short of those events.  These cases are invitations to fraud, based upon bitterness the parents may feel in the failed marriage, especially if (as sometimes happens) they blame the in-law child for the failure.

By New Jersey statute, property brought to the marriage and gifts and inheritances received from third parties (including parents) are excluded from equitable distribution.  Such property leaves the marriage with the party who received them.  (Gifts from one spouse to another, however, are included in the marital pot; whereas engagement gifts belong to the party who received them, as long as a valid marriage actually occurred).

The burden of proving that an asset is exempt from equitable distribution rests on the party making the claim of exemption.

Determining whether a parental gift was intended for one party or both is a frequent and contentious issue when a spouse files a divorce complaint. This becomes more complicated when a spouse takes a parental gift and commingles it with joint marital property.  For example, when parents make a gift by check or cash to their child, intending the gift for their child, what happens when the child elects to redeposit the funds into a joint marital account?  Invest the funds in a joint investment account?  Use the funds as part (or all) of a down-payment on a new house to be titled in the parties’ joint names?

The law has a term for a party’s taking exempt property and turning it into joint property:  transmutation.

When assets become transmuted, because they are commingled with joint assets or are converted to joint names, they can lose their exempt status.

The party who has made the transfers must show that the purpose of the commingling was for the sake of convenience, and without intent to convert assets to joint ownership.  However, that argument loses substantial weight if the assets are left in joint name for, say, 5 or 10 or 20 years.  At some point, the argument is not going to prevail, despite the spouse’s later remorse and wish for a do-over.

The best ways to protect property under the above circumstances are:

1. Sign a valid and comprehensive prenuptial agreement, spelling out the issues of sole and joint ownership of assets during marriage.

2. When parents give gifts, have them spell out clearly and in writing, with copies to both spouses and a copy kept for themselves, stating whether the intended recipient(s) are their child only, or both parties. That makes it much more difficult for a spouse to take a contrary position upon divorce.

3. If you failed to enter into a prenuptial agreement, then consider a mid-marriage agreement for the same purposes – with the understanding that New Jersey has not embraced this planning device as part of public policy and may not enforce it.

4. Do not commingle assets, unless you approach the transfer with the present thought “I may never get those back, if our marriage ends by separation and divorce.” If you still want to go forward with the commingling, then do so without hesitation and with no later regrets.

5. Watch out for small business problems, valuation issues, and entanglements. Get solid legal advice from business/transactions lawyers who can structure a small partnership or LLC in a manner that clearly spells out rights of principals, including buy-sell agreements, periodic valuations, rights to first purchase refusal upon sale, limitation of spousal involvement in the business, and addressing similar concerns.  Business owners literally need to be concerned about letting the other spouse get involved in the business.  A divorcing principal can and often does bring down the small business.  This is particularly true, and a cause for extra concern, when a spouse’s business partner is – the other spouse.

6. Keep excellent records of large purchases and investments. What were the sources of the funds?  Who is the title owner?  If the assets are liquid or investments, is the title owner adding funds during the marriage?  From individually owned/exempt sources or from income, which would be a joint/marital source of funding?

CONCLUSION

The above information is intended to be illustrative, and not exhaustive.  This is a complex topic with many variations.  What you want to avoid is a case where a spouse sues an in-law, or vice-versa, for property, return of property, assertion of a loan, a claimed lien, or anything similar.  Nothing good comes of these cases, only bad blood and worse karma.  Needing to subpoena your in-laws to a deposition or a trial just adds fuel to a dumpster fire.  If it has to be done, then it has to be done.  But it always means the parties failed to seek or heed reasonable advice at the beginning of the marriage.

As this post has shown, financial issues between parents and their married children can be complicated. If you are faced with a crisis or concern about family law, marriage, pre- mid- or post-marital agreements, parental loans, or anything related to this post, an experienced, compassionate, yet tough Family Law attorney can help you sort out your legal rights and obligations. Contact the Central Jersey Law Offices of Hanan M. Isaacs, P.C., to schedule your near-term and reduced fee initial consultation. Call 609-683-7400 or contact us online today. You will be glad you did.