7 Facts About Inheritance and Divorce You Need To Know

Divorce in America has been trending downward since the 1980s, but it's still a real possibility for many marriages. 

If you sense that a split is on the horizon, you may be concerned about protecting your inheritance from equitable distribution in divorce court.

Let’s examine how inherited assets are classified and divided during divorce and what you can do to protect your wealth from your spouse's claims.

An inheritance is a monetary gift a loved one gives to you after their death. The word inheritance may conjure up pictures of a giant wad of cash, but it more often than not takes the form of other property: real estate, jewelry, stocks, bonds, or heirlooms.

In the U.S., the baby boom generation is expected to transfer $84 trillion in assets to younger generations.

Usually not, unless the benefactor names them as heirs to the property. An inheritance is considered individual property, not marital property, and is not subject to division in the case of divorce.

Marital property is any property that is acquired during a couple’s marriage. This includes things like cash, investments, real estate, vehicles, and so on. Most of the time, this property is subject to division during a divorce.

Inherited property can become marital property if it is commingled with marital property.

It depends. If you receive an inheritance during or after your divorce, it’s doubtful that it could be considered marital property.

However, if you inherited a lump sum and deposited it into a joint bank account with your spouse during your marriage or inherited a home your family now lives in, the inheritance could be considered marital property.

Likewise, suppose you’ve used any inherited property (such as a rental house) as part of a business, and your spouse has taken part in that business as an owner or employee. In that case, they may be able to claim an interest in the inheritance.

Depending on whether your property is in a separate property (also known as common law) state or a community property state, it may be classified differently during divorce proceedings.

In separate property states, assets acquired before marriage and for personal use are considered individual property. For example, if you bought a car, titled it in your name, and your spouse rarely used it, the vehicle is your personal property rather than marital property.

By contrast, community property states consider almost everything obtained during a marriage to be shared property. 

Generally, this doesn't extend to an inheritance unless you used it as marital property (i.e., you both live in the house Grandma left you) or you used it to purchase marital property.

The nine community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Keep your inherited assets in your name only. If you inherit cash or stocks, keep them in an individual account. If you inherit a home or vehicle, be sure that only your name is on the title. 

If you use either of these as part of a business, ensure that repairs and maintenance are done by a professional rather than your spouse.

If your inheritance has already been commingled with your marital property, you may not be able to prevent it from being divided as such during divorce.

While inheritances are generally considered separate property, failing to maintain their distinction during your marriage can complicate things in a divorce.

To ensure your inheritance remains yours, keep it separate throughout your relationship. This includes using separate accounts, titling assets solely in your name, and avoiding commingling funds.

Remember, state laws differ. If you have any doubts, consult an attorney to grow your wealth and safeguard your inheritance.