One question that we are frequently asked by our divorce clients is, “what happens to property that was either received and/or given as gifts during the course of a marriage?” Our clients want to know if they will be required to share such gifts with their spouse in a divorce as part of their “equitable division of property.” 

Under Georgia law, “separate property” is not part of the marital estate nor is it subject to equitable division by the parties to a divorce.  Separate property includes: (1) assets owned prior to the date of marriage, including any appreciation in those assets, as long as the appreciation is the result of market forces, as opposed to the efforts of either spouse; (2) assets obtained with the proceeds of a sale or transfer of assets owned prior to marriage (such assets remain separate property and are not divided at the time of divorce); and (3) assets received by either spouse during the marriage by gift or inheritance from a third party.  Bailey v. Bailey, 250 Ga. 15, 295 S.E. 2d 304 (1982).  However, courts apply a different analysis when the gift in question is from one spouse to the other and when a couple receives gifts as a marital unit.

Marital property is defined as property that is acquired as a direct result of the labor and investment of the parties during the course of their marriage.  Therefore, when one or both spouses are employed, the income received from their employment and the assets purchased with that income is considered marital property.  Consequently, a gift between spouses, if purchased with funds earned through employment, is also marital property subject to division at the time of divorce. Another possibility with regard to gifts between spouses is that a spouse will give a gift of separate property, or a gift purchased using separate assets.  In most cases involving gifts of separate property, the gift will generally lose its separate status and becomes part of the marital estate, subject to division.  Lerch v. Lerch, 278 Ga 885, 608 S.E. 2d 223 (2005) (holding that when a gift of separate property is given by one spouse to the marital unit, the property will become marital property absent evidence of a contrary intent of the donor). 

As stated in the Lerch case, a gift given to a marital couple is marital property.  However, at the time of divorce one party may claim that a particular gift was in fact given to that party individually.  In Hayes v. Hayes, [279 Ga. 741, 620 S.E. 2d 806 (2005)], the Georgia Supreme Court analyzed a series of gifts from the husband’s parents, the first of which was for a down payment on the couple’s home in the amount of $3,500.00.  The second gift from the husband’s parents consisted of a series of checks for improvements on the home in the total amount of $40,000.00.  With regard to the down payment, the Court in the Hayes case held that because there was conflicting evidence as to whether it was given to the husband, or to the husband and the wife together, there was evidence to support the trial court’s conclusion that the down payment on the house was a gift to the husband individually.  However, the Georgia Supreme Court ruled differently on the issue of the $40,000.00 gift, which was transferred by each of the husband’s parents giving checks for $10,000.00 to both the husband and the wife.  Because both the husband and his father testified that the gift was structured to avoid gift tax repercussions, the Court stated that the arrangement of the gifts constituted a sham transaction, and that the state court would not relieve the husband and his parents from the structure of the gifts, as represented to the IRS.

Another case involving gifts from parents is Baker v. Baker, 280 Ga. 299, 627 S.E. 2d 26 (2006).  In that case, the wife argued that a check received from a partnership formed by her parents was a loan rather than a gift.  The Supreme Court of Georgia found that the transfer was in fact a gift based primarily on the premise that “(t)he delivery of personal property by a parent into the exclusive possession of a child living separate from the parent creates a presumption of a gift to the child.”  OCGA § 44-5-84. 

The Court in the Baker case found that although the wife presented evidence to rebut the presumption of a gift, including the testimony of several witnesses and the amounts received being categorized as loans in partnership records, other evidence corroborated the presumption.  The corroborating evidence included the lack of an enforceable promissory note and the fact that the parties never repaid any principal, which was sufficient to uphold the jury’s verdict. 

These types of issues frequently arise in a divorce case.  As shown by the cases discussed above, the resolution of these issues is very fact specific and can depend on slight variances in the structure of the gift or the intentions of the person giving the gift.