§ 8.06 Remainder Interests

• Jurisdiction: United States
• Publication year: 2021

§ 8.06 Remainder Interests

[1]—Marital Property States

A remainder interest is almost always acquired by gift or inheritance. The interest therefore normally will be separate property in those marital property states⁴⁵² that exclude gifts and inheritances from the marital estate.⁴⁵³ A separate property interest is not divisible in a divorce in a marital property state.⁴⁵⁴

[2]—Kitchen Sink States

If a spouse possesses a remainder interest at divorce in a kitchen sink state,⁴⁵⁵ the result is less clear. Property acquired by gift or inheritance is not excluded from the marital estate in such states. The only issue that would arise is whether the remainder interest should be considered an acquisition during marriage or after divorce. Post-divorce acquisitions are not divisible in a kitchen sink state.⁴⁵⁶ Most courts have considered the remainder interest an acquisition during marriage if the future interest was acquired during marriage.⁴⁵⁷ In determining whether a remainder interest should be deemed acquired during marriage, some courts inquire whether the interest could be sold at the time of divorce.⁴⁵⁸ Other courts are less concerned about alienability.⁴⁵⁹ The value of remainder interests frequently is speculative. For example, the spouse may have to survive until a certain date to receive the property in question.⁴⁶⁰ In addition, if a trust is involved, the trustee may have the right to invade the corpus for the benefit of the life tenant.⁴⁶¹ In such situations, the value of the future interest is quite speculative. If such an interest is considered divisible at divorce, the court therefore may wish to divide payments if, as, and when they are made to the spouse in the future, rather than attempting to value the interest at divorce.⁴⁶²

[3]—The Remainder Interest Received Before Marriage That Becomes Possessory During Marriage

In some instances, a spouse acquires a future interest before marriage, and the future interest becomes possessory during marriage. In kitchen sink states,⁴⁶³ this presents no characterization problem, since property acquired before marriage is divisible at divorce in such states.

However, property acquired before marriage is not divisible in a marital property state.⁴⁶⁴ If a spouse acquired a future interest before marriage that becomes possessory during marriage, the spouse could argue that the possessory interest was separate property because it stemmed from the future interest, something acquired before marriage. A similar...