The importance of segregating separate property (money, stock accounts, inheritances, for example) is emphasized once more in an unpublished but instructive case from the Michigan Court of Appeals released on June 26, 2012. [Legalo v Legalo, unpublished, June 20, 2012] In that case, the husband ["H"] During the marriage, H inherited $125,000 from his parents. He deposited this money into the parties' joint account. During the 37-year marriage, the money was moved a couple times, but ultimately it was placed in a joint account belonging to both the parties. $96,000 was used from the joint account to pay off the marital home.
During the course of the divorce proceedings, defendant wife ["W"] requested that the trial court approve the sale of the marital home for $275,000. The trial court granted her motion, and the funds were placed in escrow. H then filed a separate property claim. H claimed that $95,000 of the funds in escrow was money from his inheritance and thus was separate property that should not be divided between the parties.
W relied on Cunningham v Cunningham, arguing that once the funds H commingled his inheritance into the joint account and used that money pay off the mortgage on the parties' jointly titled home, it lost its status as separate property. H's attorney argued that Cunningham is an unpublished case and has no precedential value. This argument was incorrect, but the trial court relied upon it and stated that, as an unpublished case, Cunningham had no value and it would not follow Cunningham.
Ultimately, at the divorce trial, the trial judge found that the $95,000, because it was H's inheritance, used to pay off the mortgage was separate property and therefore belonged to plaintiff. The COA held that the trial court was incorrect when it characterized the $95,000 as separate property merely because the funds originated from plaintiff's inheritance. According to the COA, the inheritance could only have retained its character as separate property by being kept and treated as separate property.
As a result, the COA reversed and remanded to the trial court with instructions to consider the $95,000 as marital property and then to make the property distribution from the entire marital estate.
This case reminds me of other cases I've seen where a couple had a prenuptial agreement providing for retention of the separate character of certain property. Despite having the prenuptial agreement, however, couples often complicate the issues in a later divorce if they ignore the express terms of the prenup and start commingling assets that were meant to be kept separate.
Download Lagalo_v_Lagalo may be read here.
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