Divorce and Gifts – Who Keeps the Engagement Ring in a Divorce?

The purchase of an engagement ring is a hopeful one. It is built on a promise, and for some couples, it may be one of the most emotionally significant purchases in a marriage. The wedding industry at large advises that one spend three months’ salary on an engagement ring, making it a financially significant purchase as well.

As such, the question of “who keeps the ring in a divorce” can be a contentious one. There is no law that dictates who keeps an engagement ring. In North Carolina, judges tend to follow the “conditional rule,” meaning that an engagement ring is given on the condition of getting married:

• If a couple splits up before the marriage, the ring returns to the giver.
• If a couple actually marries and then divorces, the ring remains with the recipient.

Aren’t engagement rings considered gifts?

Yes and no. A “gift” has different meanings under the law, which means some gifts remain with the recipient, and some are returned to the giver.

Gifts – with certain exceptions – are considered marital property, and are therefore subject to equitable distribution.

The exceptions are:

• Gifts given by third parties before or during the marriage, and which have remained separate;
• Gifts specifically designated as separate property by the giver; and
• Real estate.

The rules, on their face, seem simple, but they rarely are. We want to take a high-level look at three specific questions that clients often ask regarding gifts in a divorce:

1. Who keeps a family heirloom?
2. Who keeps real estate?
3. Who keeps the family pet?

The Basic Rules

In dividing property between divorcing couples, a court is governed by North Carolina Statute §50-20. The court will only divide marital property. The basic rules are:

1. Marital property is generally defined as property or debt obtained during the marriage for the benefit of the marriage, regardless of who’s name is on the property or debt, and
2. The “source of the funds” rule—if the funds used to purchase an asset, or the funds obtained through credit or other debt—are marital, then the asset or debt is marital, not separate.

Who keeps a family heirloom in a divorce?

It is assumed generally that if something comes to you from a family member, either before marriage or after, it remains your separate property. No marital funds were used to purchase it, and it was a gift from a third party to only one of you. This is so even if you receive the gift during the marriage.

It Gets Complicated, however, when any of the following happens after you take possession of the heirloom:

1. You give it as a gift to your spouse—this can make it their separate property or marital property;
2. You use marital funds to increase the value of it, to maintain it, or to pay debt secured by it; or
3. You put it both of your names on some instrument of ownership, like titling a car your dad gives you in both of your names.

Doing any of these things can muddy the water as to whether the heirloom is your separate property, marital property, or your spouse’s separate property. How do you know what to do or not do regarding this important property when you are thinking about marriage or receive it after marriage? You call Hartsoe & Associates and let one of our skilled family law attorneys guide you in what to do and how to do it.

What about gifts of real estate?

The division of real property is a complex issue in any divorce, but can be more complicated when it comes to gifts. The same questions apply—was it gifted before the marriage or during the marriage? Any real estate gifted to you before marriage remains your separate property, UNLESS you record a new deed showing you and your spouse as owners of the property as what is known as “tenants by the entireties,” a form of ownership that only married people can have. Doing this creates a presumption that you intended to gift the real estate to the marriage and thus make it marital property, and this presumption is almost impossible to overcome in court.

If gifted to you during the marriage, and only to you (not to both you and your spouse), the property is your separate property and would not be divided upon divorce. Again, things get complicated if you do any of the above with regard to the real estate.

For instance, if the gifted or inherited real estate had a mortgage on it when you received it, and you then use your income or other marital property to pay that mortgage while married, then you create what is known as a “marital component” of what is still your separate property (you will get possession and ownership of the asset) that is subject to division.

For example, if you pay the mortgage principal down $100,000 using marital funds, but keep the deed in your name alone, you have created a marital component of $100,000 that will be divided between the two of you in case of divorce. There are ways to avoid this result if you consult a good family law attorney first.

Who keeps the family pet in the event of a divorce?

This particular question comes up a lot. For many, pets aren’t pets: they are family. What you must know, though, is that in North Carolina pets are legally property.

There is no such thing as “pet custody” law. A family pet is divisible property the same way the marital home and retirement accounts are divisible. Briefly:

• If you bring a pre-owned pet into the marriage, you can usually make a stronger claim that the pet is your separate property.
• If you are the one who primarily cares for the pet, regardless of who adopted or purchased the pet, you may have a stronger claim that the pet should be distributed to you.
• If you gift a pet to your spouse, the pet is marital property unless you deem it otherwise, but your spouse will have the stronger argument to have the pet distributed to them.

Generally, it is best to decide between yourselves about who will keep the family pet, but if you cannot, the court will make this decision for you. There are no specific set of rules for this decision outside of those that govern asset division, but in our experience, courts are more likely to give the pet to the spouse who cares for it. If you have children, the court may be more likely to award the pet to the primary residential parent. Again, it depends on your circumstances.

A quick note about show animals and working animals

Show animals, like certain pieces of art or a family home, can appreciate in value over time. For example, let us say John Doe owns a young horse. He marries Jane, who becomes the caretaker of this horse. John and Jane divorce three years later, just as the horse is coming into its prime and winning competitions or races.

Technically, the horse should remain with John. However, as Jane cared for the horse, which contributed to its appreciation in value, Jane may be entitled to a portion of that appreciation. This is because that appreciation could be deemed marital property.

What about working animals, like livestock?

Like show animals, working animals and livestock can appreciate in value and the court will need to determine whether that appreciation is passive (occurring just because the animal is getting bigger or is now able to produce offspring) or active (occurring because of investment in the animal or through specialized care by one of the parties.

Livestock can also produce income on a regular basis, such as chickens laying eggs or cow’s providing milk that can be sold. The court will have to sort all of this out depending on the same factors discussed above.

Things get more complicated if you own any of these animals through a business organized as a Limited Liability Company or corporation—then the property is actually owned by the business and the animals will be distributed by distributing the ownership of the company.

Note: If you choose to co-own the business after your divorce, you will need an operating agreement. Hartsoe & Associates, P.C. can help you draft this agreement. Our background in business formation makes us uniquely qualified in this regard. Our attorneys have helped divorcing business owners in and around Winston-Salem and Greensboro, and we can help you, too.

Gifts can become a source of contention in a divorce. At Hartsoe & Associates, P.C., we can help you through the process of dividing your assets, including gifts. We can also help you insure you retain ownership of important gifts and inherited property with pre-marital or post-marital agreements. To schedule a consultation with an experienced divorce lawyer in our Winston-Salem or Greensboro offices, please call 336-725-1985 or fill out our contact form. Serving the Piedmont Triad and the surrounding areas.