How to Keep Inheritance Separate from Spouse
Disclaimer: You Need to Speak to an Attorney
Who is getting what in a divorce will always depend on the facts of your situation and the laws in your state. Though the general guidelines may be similar, there is no substitute for advice from an attorney who’s licensed in your state and familiar with the facts of your situation. Generally speaking, inheritance is a separate asset. However, if certain precautions are not taken, your spouse could have an interest in the inheritance you received. Ideally, those who receive an inheritance will speak to an attorney as soon as they receive their inheritance—especially if the marriage is already struggling and eventual divorce is a possibility.
Separate Property vs Marital Property
Generally, your spouse will not be interested in your separate property. Separate property usually refers to property, assets, or income you acquired before the marriage. Separate also generally includes assets obtained during the marriage by gift or inheritance. However, there’s a caveat: if you are still making payments on the asset during the marriage, your spouse may have an interest in the asset. For example, if you buy a car with a 20% down payment before the marriage and continue making payments on the car (with money you earned at work) after the marriage took place, the asset may no longer be considered to be separate property. Marital property typically refers to any property, assets, or income earned after the marriage. Unless you have a prenuptial or postnuptial agreement that protects money earned during the marriage, simply maintaining separate finances will not change the fact that money earned after the marriage occurred will generally be considered a marital asset. Property and assets acquired after the marriage occurred will likely be considered marital assets as well. Inheritance, however, even if it is inherited after the marriage took place, is usually considered to be separate property.
Comingling of Separate and Marital Property
Comingled property refers to property that was initially a separate asset but became a marital asset due to the assets being intertwined. The best example of this is money. If you have separate funds in a checking account and then deposit marital money into that account you’re commingling the separate funds and the marital funds in a way that it’s impossible to then tell which is which. So when money is coming out of the account it’s impossible to determine whether the separate funds or marital funds are being removed. Another example of this is where a larger asset, such as a car, was purchased before the wedding on a loan and then paid off during the marriage using marital funds. Let’s say you inherit $10,000 and use that as a down payment on a new home. While the $10,000 of the home is still technically yours, the house belongs to both you and your spouse. And the income you’re using to pay the mortgage belongs to both you and your spouse, assuming you’re making payments from money you earned during the marriage. If you’d bought the home outright with your inheritance money, the asset wouldn’t be commingled simply by owning it during the marriage.
Equitable Interest
When marital funds are used to improve the value of an asset that’s separate property, then there may be an equitable marital interest in the improved value of the home. Here’s an example of how this could work in inheritance: If your spouse inherits a home from their parents, but it needs a lot of work, and marital funds are used to renovate the home, there may be an equitable interest in the separate property.; In a case such as the aforementioned, the spouse who didn’t inherit the house may still have an equitable interest in the home. If you inherit something, but you pay for its upkeep using marital funds or assets, your spouse may have an equitable interest in the asset.
Postnuptial and Prenuptial Agreements
Prenuptial agreements and postnuptial agreements can be helpful when you’re trying to protect your inheritance from your spouse in the event of a divorce. Postnuptial agreements aren’t designed to ensure that you get everything and that your spouse becomes destitute. However, they can be helpful when mitigating your exposure to liability in the event of a divorce. Prenuptial agreements and postnuptial agreements are good to consider when you have any meaningful assets that you’d like to protect along with any increase in value these assets may have during the marriage. Putting your assets in a trust before the marriage may also help protect them in a divorce. If you have questions regarding prenuptial agreements, postnuptial agreements, and inheritance, you can set up a consultation with one of our attorneys at CoilLaw.
