How to Protect Your Inheritance In Your Divorce
Receiving an inheritance from a family member or friend who has passed away can be a seminal moment in one’s life. The inheritance can provide significant financial help for the inheritor but can also create problems if it is not managed well. In some cases, it may even become a point of contention in a divorce.
In this article, we will address how to protect an inheritance in a divorce. Even though there is considerable overlap between each situation, for our purposes, we will break our presentation down into three scenarios:
- Inheritance received before marriage
- Inheritance received during marriage
- Inheritance received after separation/divorce
As we investigate each scenario, we should bear in mind that an inheritance is not always a sum of cash. Many inheritances involve non-monetary items such as real estate, collectibles, or business interests. Every situation has its unique characteristics, and therefore, while the ideas below may be helpful in a general sense, counsel from financial and legal professionals should be sought to ensure that the specific needs of your particular case are adequately addressed.
Inheritance received before marriage
The State of California is one of a handful of states that follow the “Community Property” rule in dividing a marital estate. “Community property” is broadly defined as any assets or liabilities obtained during the time of marriage and is usually divided 50-50 in the event of a divorce. “Separate property” is anything the individual spouses obtained either before or after the time of marriage and stays with them in the divorce. California further defines the “time of marriage” as between the wedding date and the date when the couple separated, even if the formal divorce was only finalized later.
Given those definitions, an inheritance received by one or the other spouse before they were married would be considered “separate property” and, therefore, not subject to division.
As you can imagine, however, this rather simplistic description rarely fits the real world. We will address the concept of “commingling” more below, but it is not hard to see that the lines of ownership of an inheritance received before marriage – especially if it was a cash inheritance – may easily become blurry when the marriage occurs. This may, in turn, result in the inheritance being classified as “community property” and made subject to division.
Can a prenuptial agreement help?
To protect against this genuine possibility, the inheritor spouse can request a “Prenuptial Agreement” (“prenup”) with the other spouse. A prenup is essentially a financial contract that outlines ahead of time what property will be included in the marital estate and what property will remain under each spouse’s individual ownership should a divorce occur. Engaged couples probably don’t want to think about such things, but a thorough and legally sound prenup can save a considerable headache later. It may even help make the divorce proceedings faster and less costly – not to mention more amicable.
Even with a prenup in place, though, it would be a good idea for the inheritor spouse to take positive steps to maintain their own individual control over the inheritance that they received. Keeping inherited money in a separate, individual account or maintaining sole ownership of a piece of inherited real estate are effective ways to ensure the inheritance does not become commingled with the rest of the marital estate.
Inheritance received during marriage
A significant exception to California’s “community property” designations is that an inheritance received while married remains the separate property of the inheritor. There are many ways, though, that the inheritance may become “commingled” with the marital estate and thus become divisible community property. Some examples would include:
- Depositing the inheritance check into a joint bank account and keeping it there;
- Listing both spouses on the deed of an inherited home;
- Using inherited money – even if from a separate account – to put a down payment on a new family home;
- The non-inheritor spouse taking an active role in managing their spouse’s inherited business.
In other words, if the inheritance is used to supplement the marital estate or advance the marital lifestyle in any way, it will become difficult to convince a family law judge that it should be reclassified as “separate property” in the event of a divorce.
To protect an inheritance received during marriage involves the same basic principle as an inheritance received before marriage: actively keep the inheritance separate. Proper record-keeping will be vital here. Additionally, a “Postnuptial Agreement” (also known as a “postnup”) can be used to delineate who owns what and what should not be included in the divisible marital estate.
Inheritance received after separation/divorce
An inheritance received after a couple separates remains under the ownership of the inheritor; it is not subject to outright division. It may still affect the divorce, however, especially if there are any spousal support (alimony) or child support payments agreed to in the final divorce settlement.
An anticipated inheritance may not be used to calculate alimony or child support. However, as to a received inheritance, it is always possible for an ex-spouse to appeal to a court to modify the terms of such support if changes in life circumstances warrant it. Such appeals could go a couple of different ways:
- If the spouse paying support receives a substantial inheritance, the receiving spouse can appeal to increase the support payments;
- If the spouse receiving support receives a substantial inheritance, the paying spouse can appeal to decrease the support payments.
Protecting your inheritance… protecting you
While the rules about inheritances and divorce seem straightforward on a surface level, they can become quite complicated in many situations. That is why you need our team of knowledgeable and experienced family law attorneys at Silva and Associates to help ensure that you get the maximum protection possible within your particular circumstances. Contact us today, and let us put our experience to work to protect you and your family’s legacy.
divorce involving inheritance FAQS
Q: What role does a prenuptial or postnuptial agreement play in protecting my inheritance?
A: Prenuptial and postnuptial agreements can be effective tools for safeguarding your inheritance by outlining how it should be treated in case of divorce.
Q: How do courts determine the division of an inheritance in a divorce?
A: Courts consider various factors, including the source of the inheritance, how it was used during the marriage, and state laws, when determining its division.
Q: Can I protect my inheritance if my spouse and I never had a formal agreement?
A: While it’s more challenging without a formal agreement, you can still present evidence to demonstrate the inheritance’s separate nature and your intent to keep it as such.