Do you know what happens when your child gets divorced? Although the issue of gifted and inherited assets is not a new topic in the context of a Massachusetts Divorce, I have recently seen an uptick in interest in this topic. So it is time to revisit this issue.
What You Should Know About Inherited Assets When Your Child Gets Divorced
Some lawyers will flatly tell a client – whether that client is a party to a divorce or the parent of a child who is divorcing his or her spouse – that gifted and inherited property is not an asset subject to division by the court in Massachusetts in a divorce. Lawyers who make such a simple statement are wrong because this is not a simple issue.
Whether the interest about which the court is concerned has or has not vested is one critical element of the analysis of whether the gifted or inherited assets are, or are not marital assets subject to division.
Once an interest has been vested, it may be considered a marital asset subject to division in a divorce. But how the asset is divided is a matter of contention for negotiation or for the factfinder (the judge) to decide at trial.
On the other hand, there remains the matter of a future interest in the assets of a parent by will or estate plan. Unlike a present – vested – interest, a future expected gift or inheritance is called an expectancy. It is, and the name suggests, something that a child may expect to receive at some time in the future when the conditions precedent to receiving the gift or inheritance (typically the death of the donor and the living status of the beneficiary) are met.
So, since the corpus of the estate plan is not a present interest or a present asset actually held by a divorcing party, most would assume that it is not an asset subject to division and is “out” of the divorce.
Some Things You Should Know About Massachusetts Divorce Law
While expectancy is not a presently held thing, it is not completely “out” of the consideration of the court in the context of a divorce. On the contrary, it may be very much on the court’s radar.
Massachusetts General Laws, Chapter 208, Section 34 provides several factual considerations the court must consider in a divorce. Among those factors, G.L. c. 208, § 34 requires the court to consider “the opportunity of each [party] for future acquisition of capital assets and income. . . .” That includes an expectancy, and so while an expectancy is not a present marital asset held by a party subject to division in the divorce, the expectancy is very much one consideration for the court to look at when deciding the outcome of the financial aspects of the divorce.
But how will a party determine what his or her father’s and/or mother’s-in-law estate is worth? And what about the privacy interests of the parents to whom a divorcing party is looking for answers and information about their assets?
Discovery is the process by which a party in a divorce, or litigation in general, collects information that may lead to the identification and presentation of evidence at trial or which is vital to the negotiation process and eventual settlement of a case without a trial.
Discovery methods include taking the deposition of people or entities who are not a party to the divorce. The person being deposed is the deponent, that is, the witness who will be sworn in by a notary public and who will answer questions before a stenographer who will make an official transcript of the testimony.
For a parent whose child is divorcing his or her spouse, the discovery process into that parent’s estate and assets can be considered intrusive.
However, this exact issue was reviewed by the Massachusetts Supreme Judicial Court in 1991 in the matter of Vaughn v. Vaughn. The SJC reviewed the issues of the privacy interests of a parent and the discovery interests of a litigant in the Vaughn case. But the case is an unpublished, single justice opinion. It is not legally binding on the lower courts. And because it is a 30-year-old unpublished opinion, it can be a little hard for people to find. You can read it on my website.
The process of providing information by affidavit in lieu of a deposition described in Vaughn has become standard practice in Massachusetts as a compromise approach to balancing the competing interests of privacy of the parent with the discovery interests of the litigant. The resulting document is known as a Vaughn Affidavit.
A Vaughn Affidavit limits the information to be disclosed by a parent who is not a party to a divorce to (1) their approximate current total net worth (plus or minus $500,000), (2) a general description of their current estate plan and wills, and (3) the date, if any, when the estate plan or will were last amended.
As you can see, the issue of the relevancy and treatment of gifted and inherited assets in divorce is not a simple issue of whether the corpus of a divorcing parties’ parent’s estate or estate plan is “in” or “out” of the divorce.
I hope that this article helps the reader better understand these issues.