Unintended Consequences

I recently attended a hearing in divorce court. While I was waiting for the Judge to call my case, I had the opportunity to listen to an argument about the division of home between a husband and wife. Typically, the marital residence of a couple is subject to an equitable division. The twist in this particular case was that the home was a gift from the wife's mother. Furthermore, the mother continued to live in the home. The wife's argument was that her mother intended for the home to remain in the family.

This situation provided a real-life example of the risks of making lifetime transfers of property. I am often asked by clients whether parents should transfer their homes to one or more of their children. The typical reason for these transfers is to "protect" the home from Medicaid should the parents ever require long-term medical care. Such a transfer may be legally and morally questionable. Nevertheless, there is a real practical risk in that the parents are no longer the owners and the home could be subject to the claims of the children's creditors (such as a divorcing spouse). I would not want to live in a home that is owned by someone else because my rights to remain in the home are not guaranteed. I fear many parents do not appreciate this risk when making these transfers.