Gifts and Inheritances that you bring into the marriage or that you receive during the marriage are considered "separate property" in Michigan, provided that you can identify the assets and their source as being gifts or inheritance to you and that you keep them separate during the marriage. In the event of a divorce, "separate property" is retained by the spouse who received it as a gift or inheritance without having to share it with your spouse.
It is not necessary to have a prenuptial agreement in order to achieve this result. It is necessary to keep good records. You can accomplish this by:
a. Retain the records showing when and how you received the gift or inheritance. Probate court records, copies of checks, bank transfer records will accomplish this, provided they show the date and the name of the person gifting or devising the property and the recipient. Sometimes, as time passes, its tempting throw these records away. Don't. Place them in a safe, separate place, such as your own safe deposit box.
b. Retain the records showing where the money or property was deposited and the growth on the property. If there is a divorce, you will have the burden of showing that the funds were received as a gift or by inheritance AND that you kept the property separate. So, keeping a good subsequent records is important. Do not count on the investment company where you deposit the money to keep these records. Many banks and investment companies only keep records for 7 years.
c. Do NOT commingle the gifted or inherited property. In other words, if you receive a gift or inheritance from a family member, place it in a separate account. Do not add it to an already existing account. Do not add money that was earned during the marriage to this account. Adding "marital money" can be considered commingling. Commingling can cause the property to lose its separate character.
d. If the property is in the form of real estate, do not add your spouse's name to the property. This is legally considered making a gift of half of the property to your spouse. This will cause it to lost the "separate" classification. If it is considered marital property, your spouse will probably receive half of its value.
e. Ideally, if you received real estate and money as a gift or inheritance, use the money to pay the property taxes, insurance and other expenses of retaining the real estate. Substantiate the source of these payments with good records, such as copies of checks from your separate account.
f. Ideally, too, if you can pay the income taxes on the earnings on your separate investments from the gifted or inherited property. In Michigan, currently the law is that paying income taxes on these earning using marital money or declaring the investments as income on joint taxes does not change the nature of the property from separate to marital. However, it is easier to prove that the property remained separate if you can so you paid the taxes on the earnings.
g. Try to shelter this money and do not routinely use it to support the family. If you frequently dip into your separate funds to meet household expenses, it may also lose its separate nature.
The law in Michigan regarding separate property is complex and changing. There are many layers to the analysis of whether property held by one spouse at the time of divorce is separate or marital. However, with careful planning, it is possible for gifted or inherited property to be retained solely by the spouse who inherited it or received it by gift.