The basics of equitable distribution and the treatment of gifted and inherited assets in Massachusetts

Issue June 2014 By By Patricia A. O’Connell and Donald G. Tye

Your client has decided to end the marriage, and your client is concerned about future financial security. Your client is eager for reassurance that the other spouse will depart the marriage with the many gifted assets that your client alone brought into it. On the other hand, your client may be the other spouse who wants only a fair share of the inherited assets brought into the marriage by his/her spouse - assets that your client alone managed and grew over the course of many years. Either way, it is crucial for you to understand and explain to your client the basics of "equitable distribution" of property upon divorce in Massachusetts and, in particular, the treatment of gifted and inherited assets.

Basics of equitable distribution

The marital estate subject to distribution consists of all property owned by either property, including pre-marital property.
In the Commonwealth of Massachusetts, a Probate and Family Court's authority to distribute property upon divorce is entirely statutory and governed by M.G.L. c. 208, § 34 (hereinafter Section 34). Section 34 provides, inter alia, that:

In addition to or in lieu of a judgment to pay alimony, the court may assign to either husband or wife all or any part of the estate of the other, including but not limited to, all vested and non-vested benefits, rights and funds accrued during the marriage1 and which shall include, but not be limited to, retirement benefits, military retirement benefits if qualified under and to the extent provided by federal law, pension, profit-sharing, annuity, deferred compensation and insurance. M.G.L. c. 208, § 34.

A party's "estate" (as referenced above) is defined broadly to include "all property to which [he or she] holds title, however acquired." Rice v. Rice, 372 Mass. 398, 400 (1977) (rejecting the husband's contention that the trial court lacked authority to transfer his separate property acquired before the marriage to his wife upon divorce); see also Baccanti v. Morton, 434 Mass. 787 (2001) (upholding trial court's inclusion of premarital assets in the marital estate, despite the husband's testimony that the parties orally agreed to keep those assets separate); Drapek v. Drapek, 399 Mass. 240, 243 (1987). As such, the commonwealth is unlike other "marital property" states that specifically exclude premarital property from the marital estate subject to distribution. See Moriarty v. Stone, 41 Mass. App. Ct. 151, 156-57 n. 4 (1996) ("The term 'estate' … includes property obtained by a party before marriage …"). In fact, assignable assets can even include post-marriage assets in certain circumstances. See Brower v. Brower, 61 Mass. App. Ct. 216, 218 (2004) (holding that assignable assets can include portion of teacher's pension accrued after divorce). In a nutshell, everything is "in the marital pot" for distribution upon divorce. The more nuanced issue is how that marital pot will, in fact, be doled out fairly between the parties.

The court has broad discretion in weighing the statutory factors that must be considered when distributing the estate.
How does the actual distribution work in the absence of a negotiated agreement? The Probate and Family Court judge assigned to the case will hold an evidentiary hearing (trial), whereby the attorney for each party will present evidence (i.e., witness testimony and exhibits/documentary evidence) relating to each of the various factors that the court must consider pursuant to Section 34, namely:

  • Length of the marriage;
  • Conduct of the parties during the marriage;
  • Age;
  • Health;
  • Station;
  • Occupation;
  • Amount and sources of income;
  • Vocational skills;
  • Employability;
  • Estate, liabilities and needs of each of the parties;
  • The opportunity of each for future acquisition of capital assets and income;
  • Amount and duration of alimony, if any, awarded under sections 48 to 55, inclusive;
  • The present and future needs of the dependent children of the marriage;
  • Contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates (discretionary); and
  • Contribution of each of the parties as a homemaker to the family unit (discretionary).

 These factors "reflect a view of marriage as an implied partnership for the purposes of distribution of property." Savides v. Savides, 400 Mass. 250, 252 (1987). In fashioning a judgment to distribute the marital estate following trial, the court must make it clear in written "findings of fact" that he/she considered each one of the "mandatory factors" set forth in Section 34.2 King v. King, 373 Mass. 37, 40 (1977). Further, the court must provide a clear rationale, based on its findings, for the judgment reached. See Mahoney v. Mahoney, 425 Mass. 441, 447 (1997); Bowring v. Reid, 399 Mass. 265, 267-68 (1987) (review requires appellate court to look for the lower court's findings of fact and rationale; the decision must flow rationally from the judge's findings).

Clients often ask, "Isn't the length of the marriage the most important factor?" or "Doesn't the distribution really depend on much income is available?" No one factor trumps all others, and "[t]he weight to be accorded each of the § 34 factors in a particular case is committed to the judge, who has broad discretion in fashioning a judgment under § 34." Langerman v. Langerman, 9 Mass. App. Ct. 869, 870 (1980). "Such broad discretion is necessary in order that the courts can handle the myriad of different fact situations which surround divorces and arrive at a fair financial settlement in each case." Rice, 372 Mass. at 401. See also Redding v. Redding, 398 Mass. 102, 107 (1986) (trial judge's decision and the weight accorded to the respective Section 34 factors will not be reversed unless the judgment is "plainly wrong"). The practical effect of this far-reaching discretion is that two different judges, evaluating the very same evidence, could arrive at very different judgments - particularly in mid-length marriages, where the equities may be more nuanced than those presented in a short-term or long-term marriage. For instance, it is easy to understand why a judge might opt to "split everything down the middle" in a 40-year marriage, or to let each party "walk out with what he walked in with" following a two-year marriage. But what happens in a 12-year marriage where there are various assets, inherited or otherwise? Given this uncertainty, the marked increase in the use of prenuptial agreements to protect familial wealth is not surprising.

There is no presumption of a 50/50 distribution of the estate.
Unlike some other states that have adopted an equitable distribution theory, Massachusetts does not have a statutory presumption in favor of a 50/50 distribution. There is no specific formula that must be followed in determining an equitable division of marital property, nor is there any precedent requiring an equal division of assets (even in a long-term marriage). See Handrahan v. Handrahan, 28 Mass. App. Ct. 167, 168 (1989) ("mathematical precision" isn't the test); Cabot v. Cabot, 18 Mass. App. Ct. 903 (1984) (no specific financial formula requiring precise parity in an equitable division of the marital estate). Rather, "[t]he parties' respective contributions to the marital partnership remains the touchstone of an equitable division of the marital estate." Moriarty v. Stone, 41 Mass. App. Ct. 151, 157 (1996). The goal is to achieve an equitable division of the parties' assets, not necessarily an equal division. See Williams v. Massa, 431 Mass. 619, 626 (2000).

The court has discretion to determine the date for dividing the marital estate.
Fixing the end date of the marriage (for the purpose of determining what can be included in the marital estate) "is best left to a case by case analysis." Davidson v. Davidson, 19 Mass. App. Ct. 364, 376 (1985). In many (if not most) cases, the court will consider the Section 34 factors and divide the marital estate as of the date of the divorce. See id. at 375-76. This is particularly true if the parties are separated but one of them is still providing a non-economic contribution by caring for a child. See DeCastro v. DeCastro, 415 Mass. 787 (1993). Yet in certain instances (such as a lengthy separation), the court will value an asset at the date of separation where there have been no subsequent contributions. See Savides, 400 Mass. at 252; Daugherty v. Daugherty, 50 Mass. App. Ct. 738 (2001).

Treatment of gifted, inherited and pre-marital assets
The Supreme Judicial Court has flatly rejected any rule that gifted and inherited assets should inure to the spouse who brought them into the marriage upon divorce. See Williams v. Massa, 431 Mass. 619, 626 (2000) (noting that Massachusetts "has no hard and fast rules" on the allocation of gifted and inherited assets in divorce proceedings, unlike many other states). Gifted and inherited assets are treated like any other property, in that the Probate and Family Court has "considerable discretion" in determining their distribution. Drapek v. Drapek, 399 Mass. 240, 243 (1987). Yet while the commonwealth does reject any "notion that inherited wealth should remain in blood lines," Bacon v. Bacon, 26 Mass. App. Ct. 117, 123 (1988) (Kaplan, J., concurring), the Probate and Family Court will look very closely at the overall "contributions" of the party who did not receive the gift/inheritance to the marital partnership and/or to the gifted/inherited assets (such as by managing those assets or helping them appreciate in value). In that regard, the case law suggests that the longer the marriage, the more likely that the court will view the parties' contributions to be relatively equal (and therefore distribute the gifted/inherited assets, rather than setting them aside for the party responsible for acquiring them). See Denninger v. Denninger, 34 Mass. App. Ct. 429 (1993) (error to limit husband's share of wife's inheritance to 15 percent after 27-year marriage); Comins v. Comins, 33 Mass. App. Ct. 28 (1992) (husband assigned 46 percent of estate derived of gifts from wife's family after a 48-year marriage).

The seminal case involving gifted/inherited assets in Massachusetts is Williams v. Massa, 431 Mass. 619, 626 (2000). The parties in Williams, who had two children together, had been married for 19 years when they separated in 1993. Id. at 620-21. They lived a comfortable middle-class lifestyle, largely as a result of the husband's gifted/inherited assets (including stocks and bonds gifted by his parents prior to the marriage, and interests in family trusts). Id. at 620-21. The husband worked as the CEO of the family's closely-held business, and the wife had not worked outside of the home since the birth of the parties' first child. Id. at 621.

Following a trial on the distribution of the estate, the court made explicit and detailed findings as to the husband's extensive contributions to the marriage and the wife's shortcomings in this regard. The trial court found that the husband was the primary breadwinner (running the family business), the primary homemaker and was primarily responsible for taking care of the children's routine care as they got older. Id. at 624. He also managed the gifted/inherited assets (which, the court specifically noted, were kept separate from other assets acquired during the marriage) and made all investment decisions. Id. at 625. In short, the husband's contributions to the marital enterprise in Williams far exceeded those of the wife (who had issues relating to mental health and interpersonal relations; who had alienated the parties' daughter from the husband; and who was described in a manner that suggested she was lazy). Based on these findings, the trial court awarded the husband all of his inherited and gifted assets (totaling $2,725,194) and 26 percent of the non-inherited assets (totaling $507,040) after the evidence reflected "no special circumstances which would justify an assignment to the wife of the husband's inherited or gifted property." Id. at 625. The wife was awarded alimony and 74 percent of the non-inherited assets (totaling $1,443,115). Id. at 624. The wife appealed, claiming that the trial court utilized an improper "special circumstances" test to distribute the estate.

The Supreme Judicial Court affirmed the lower court's decision, rejecting the arguments that (i) the trial court improperly excluded the gifted and inherited assets from the marital estate, and (ii) the trial court imposed an improper test ("special circumstances") instead of the Section 34 factors in dividing those assets. Id. at 620. The SJC found that the lower court properly considered the statutory factors set forth in G.L. c. 208, §34, especially the fact that the husband's contributions to the marital partnership "greatly exceeded" those of the wife. Id. at 627. Further, the SJC found that the trial court was well within her discretion in considering the source of the gifted/inherited assets (the husband's family, pre-dating the marriage); each party's role in managing the gifted and inherited assets; and the fact that these assets were kept separate from other assets acquired during the marriage. Id. at 627.

The Williams case thus elucidates several important factors that the court will consider in distributing gifted/inherited assets:

The source of the inherited assets (i.e., a willingness to "sequester" assets to the party responsible for acquiring them, when a balancing of the Section 34 factors - particularly conduct - would make it equitable).

Each party's role in managing the gifted/inherited assets (suggesting that a party not responsible for acquiring the gifted/inherited assets may be more likely to receive a portion of the same if he or she is actively involved in the management of the assets).3

Whether the gifted/inherited asset was kept separate from the other marital assets (suggesting that such assets are more likely to be equitably distributed if there is some co-mingling, particularly in a long-term marriage).

 Still, the tone of the Williams decision suggests that the lower court found the wife's behavior downright distasteful. One has to wonder if the husband would have been awarded all of his gifted/inherited assets if the wife had not been so apparently "unlikeable" and if the marriage hadn't been so one-sided.

The treatment of gifted and inherited assets - and the mandate to focus on the parties' contributions to the same - was also carefully addressed in Bacon v. Bacon, 26 Mass. App. Ct. 117 (1988). In Bacon, the wife had gifted/inherited assets of $3,020,552, consisting of property acquired for the wife's benefit by her family prior to the marriage. Id. at 118. When the parties married, the wife was the beneficiary of a trust that provided her with income of about $20,000 per year; when the trust terminated during the marriage, she received significant distributions. Id. at 119. The assets grew over the years until the time of the parties' divorce, largely due to inflation and the addition of dividends/interest to the principal. Id. The husband did little to appreciate the value of these assets. Id. The marital estate also included a marital home, which had equity of $865,621; the home was purchased and improvements were made with the wife's gifted/inherited funds. Id. at 120. The lower court noted that the husband was self-supporting, had adequate housing, and had been abusive during the marriage. Id.

The Appeals Court in Bacon affirmed the lower court's decision, permitting the wife to retain the vast bulk of the assets traceable to the corpus of the trust created for her by her biological family and ordering the husband to convey to the wife his interest in the marital home (which had been purchased with her gifted assets). Id. at 118. Like the SJC in Williams, the Appeals Court emphasized the importance of the parties' respective contributions to the gifted/inherited assets - and focused on the distribution of the marital estate as a manner of correcting an imbalance. Id. The Appeals Court highlighted that:

Disparity of contribution[s] within the marriage may be addressed by a close judicial examination of particular facts on the case presented. Such an examination should reveal whether the marriage has been a true partnership characterized by team effort, or whether the burdens have been unequally allocated. An imbalance in the assumption of responsibilities and burden[s] is an indication that one spouse has failed to contribute. The discretion to make an equitable rather than an equal division of property enables the trial judge to deal flexibly with the problem of imbalance …

 Id. (citing Inker & Clower, "Towards a New Justice in Marital Dissolution: The Massachusetts Statutory Scheme and Due Process Analysis," 16 Suffolk U.L. Rev. 907, 935-936 (1982)). The failure of the husband in Bacon to make any notable contribution to the acquisition, preservation or appreciation of wealth which the wife brought to the marriage, or to homemaking, was critical in allowing the wife to keep most of her inheritance. Id.

However, the reality is that an imbalance of contributions is not readily apparent in most marriages. In Baccanti v. Morton, 434 Mass. 787 (2001), for instance, the parties had been married for nine years when the wife filed for divorce. Id. at 789. The marriage was traditional in nature, in that the husband was the primary breadwinner and the wife was primary caretaker of their child and the primary homemaker. Id. at 788. Following trial, the trial court distributed the marital estate on a 50/50 basis and thereby assigned the wife portions of the husband's premarital assets. Id. at 789. On appeal, the husband claimed that the lower court failed to make findings as to each of the requisite Section 34 factors and that the assignment of the husband's pre-marital assets to the wife was an abuse of discretion. Id. at 790, 793. The Appeals Court upheld the decision, noting that the lower court "determined that an evenly divided distribution of marital property was most equitable in light of the parties' contributions to the marital enterprise, the length of the marriage, and their ability to obtain future income and assets" despite the fact that the husband was the one who brought the assets into the marriage. Id. at 793.

The existing case law demonstrates that the treatment of gifted and inherited assets upon divorce is highly case-specific (i.e., driven by the unique facts of each case). Nevertheless, the following trends are apparent:

The longer the marriage, the more likely that gifted and inherited assets will be distributed in some manner between the parties.

A gifted or inherited asset is more likely to be distributed between the parties if it has been "woven into the fabric" of the marriage (for example, the couple historically met their living expenses off of income generated from an account gifted by one spouse's family).

"Contribution" seems to be particularly important in the context of gifted and inherited assets. The spouse who did not receive the gifted/inherited asset will be more likely to benefit from it if he/she has historically been actively involved in managing or caring for the asset (for example, overseeing an investment portfolio and paying taxes on the income generated, or maintaining/improving a home that had been gifted).

If the divorcing spouses (particularly in a long-term marriage) had planned on using a gifted/inherited asset (whether principal or income) to finance retirement, then the "non-gifted" spouse who relied on that asset is more likely to share in the distribution of the asset.

Despite case law rejecting the idea of "bloodlines," there seems to be, in practice, a hesitancy to use divorce as a vehicle for transferring wealth across families. If a court awards a spouse all or nearly all of his/her gifted and inherited assets, it will often award the "non-gifted" spouse a disproportionate share of the remaining marital estate to cushion the blow.

Assets that are available to a spouse for his/her use are often included in the marital estate subject to distribution, even if he or she does not technically control the asset. See Comins v. Comins, 33 Mass. App. Ct. 28 (1992) (holding that the trial court properly included in the marital estate the wife's interest in a trust that had been settled and funded by her father, the terms of which allowed the trustee in his sole discretion to pay to the wife so much of the principal and interest deemed advisable for her comfort and support).

Even non-vested, contingent interests (such as a remainder interest in a family trust) can be included in the marital estate and subject to distribution in certain circumstances, provided that future acquisition is fairly certain (not remote or speculative). See S.L. v. R.L., 55 Mass. App. Ct. 880 (2002) (holding that interests in trusts that depended on the wife's surviving of her mother were properly included in the marital estate, even though discretionary powers to invade principal were given to the trustee); compare D.L. v. G.L., 61 Mass. App. Ct. 488 (2004) (husband's interest in trust was too remote to include in estate, where his interest would vest only if his father died by a date certain and the husband survived him). If a court finds such an interest to be remote or speculative, it will still usually consider it under the Section 34 criterion of "opportunity of each for future acquisition of capital assets and income."

A potential inheritance will not be included in the marital estate for distribution, as it is a mere "expectancy." Davidson, 19 Mass. App. Ct. at 374.

In light of these considerations, it is imperative that your client tell you all that he/she knows (and provide any available documentation) about the source of any gifted/inherited assets; your client and the other spouse's use, or sequestration, of those assets during the marriage; and your client and the other spouse's contributions to both the gifted/inherited assets and the overall marital partnership.

1Accrued during the marriage" should not be read as a "marital property" limit on the power of the court to distribute assets.
2The text of Section 34 states that the court "may" consider the two so-called "discretionary factors" - that is, (1) the contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates, and (2) the contribution of each of the parties as a homemaker to the family unit. In practice, these factors are almost always considered and awarded significant weight.
3See also Denninger v. Denninger, 34 Mass. App. Ct, 429, 434 (1993) (rejecting disproportionate distribution of marital estate to the wife after a 27 year marriage that produced two children, and stating "[i]t is difficult to understand why the husband should share so little of the run-up in value of the marital residence, the consequence of market factors, or of the investment portfolio, whose source was the wife's parents, but to whose growth the husband made at least some contribution by helping to pay taxes on the portfolio income.").