Do You Have to Return Gifts From In-Laws in a Divorce?

Many spouses receive gifts from in-laws before or during marriage. In numerous cultures, it is a tradition for parents to provide newlyweds with various gifts – and North Carolina is certainly no exception. These gifts may range from a few hundred dollars to much greater sums for wealthy families. Often, parents contribute to a family residence for the newlyweds, and in some cases, in-laws provide 100% payment for new homes. In the event of a divorce, these gifts may cause a range of complicated issues. Who walks away with the gift? Is it divisible between spouses? Do you have to return the cash gifts to the parents? A qualified divorce lawyer in North Carolina may be able to provide further insights.

Spouses must understand that according to its legal definition, a gift is not supposed to be returned. After someone provides you with a gift, they cannot demand that you return it. This is true whether or not you eventually get divorced. Once in-laws give the gift, they must accept that they will likely never receive it back again. If your in-laws are asking that you return a cash gift they provided during marriage, know that they have no legal basis to make these demands. You could still return the gift if you feel that this is the most ethical course of action, but you are under no obligation to do so.

The first thing you need to consider is the intended recipient of the gift. If the in-laws provided the gift to both spouses, then it generally becomes marital property. In other words, both spouses must divide the property in a roughly equal manner according to North Carolina’s equitable distribution system.

If only one spouse received the gift, then it becomes their “separate property,” and they do not need to divide it during divorce. This is the “default” status of all inheritance during, before, and after marriage. Only when in-laws explicitly give gifts to both spouses does it become marital property.

In these situations, it may be important to prove that in-laws provided the gift to both spouses. You might refer to a card that accompanied the gift, and this card might contain a clear indication that the gift was for both spouses. For example, the card might read, “Dear John and Silvia, please accept this cash gift of $200,000 to help you get started with your new life.” Alternatively, a spouse may seek out evidence that they alone were the intended recipient. If both spouses disagree about the intended recipient(s) of a particular gift, they may need to resolve this dispute in court.

Some parents may wish to “classify” their gifts as loans. This effectively turns the cash into a liability rather than an asset, creating a potentially effective financial arrangement for everyone involved. Although there are certain tax benefits associated with giving gifts, parents may experience other tax benefits from having unpaid loans on their books.

Conversely, spouses may classify their cash gifts as debt when approaching divorce. As a result, their on-paper net worth reduces – potentially causing more beneficial outcomes during equitable distribution. If the gift was intended for both spouses, they may both experience these benefits. However, the loan terms may be far more agreeable between blood relatives. In fact, parents may not expect to ever receive repayment from their biological children. In contrast, these parents may demand that the other spouse repay 50% of the loan in full. This could provide a measure of control to parents providing financial support to newlyweds in a more conditional manner. Perhaps most crucially, it would help parents avoid giving away their wealth to an ex-spouse who eventually breaks all familial connections.

In any case, it is important for parents to clearly communicate the terms and nature of gifts or loans to newlyweds. If it is a loan, it must be clearly defined as such. If it is only intended for one specific spouse, this individual must be specifically identified.

If you have been searching for an experienced divorce lawyer in North Carolina, look no further than Arnold & Smith, PLLC. We know that cash gifts and inheritance can lead to serious confusion during divorce, and we can provide targeted guidance based on your unique situation. Although an online article represents a solid starting point, further guidance alongside divorce lawyers may be necessary to resolve this issue. Book your consultation today and discuss your circumstances in more detail.