Protecting Your Inheritance in Divorce: How to Keep it as Separate Property
What to Know About Inheritance During Divorce
When going through a divorce, one of the key concerns is how assets will be divided, including any inheritance you’ve received. While inheritance is generally considered separate property, there are several factors that can impact whether it remains yours or becomes part of the marital estate. In this blog post, we cover what you need to know about protecting your inheritance during a divorce.
1. Inheritance as Separate Property: In most cases, inheritance is classified as separate property, meaning it belongs solely to the individual who received it, even in a divorce. However, this is only true if the inheritance is kept completely separate from marital assets.
Marital Property: Assets accumulated during the marriage, such as earnings, joint purchases, or investments, are typically divided between spouses in a divorce.
Separate Property: Inheritance received during the marriage, or prior to it, generally remains with the individual—unless it becomes commingled with marital assets.
2. Avoid Commingling Inheritance with Marital Assets: To keep your inheritance protected, it’s crucial to avoid commingling it with marital property. If inherited funds or assets are mixed with shared marital accounts or used for joint purchases, they may lose their status as separate property and become subject to division. To protect your inheritance:
Open a separate account for your inheritance and keep it distinct from any joint or marital funds.
Avoid depositing marital income or shared funds into the same account.
Keep a clear record of transactions to show that the funds are part of your inheritance, not joint assets.
3. Be Careful with Joint Purchases: Using inheritance money to buy shared property—such as a home or car—can complicate its status during a divorce. If the inheritance is used for a joint purchase, the courts may treat the asset as marital property, subject to division. To avoid this:
Use your inheritance for purchases that remain in your name only, and keep documentation showing the source of the funds.
If you contribute inherited funds to a joint purchase, consider drafting a legal agreement clarifying your financial contribution.
4. Prenuptial and Postnuptial Agreements Can Help: A prenuptial or postnuptial agreement is one of the most effective ways to ensure that your inheritance is protected in the event of a divorce. These agreements allow both spouses to clearly define which assets are considered separate property and which are subject to division.
Prenuptial Agreement: Signed before the marriage, it can outline how inheritances will be treated.
Postnuptial Agreement: Signed after the marriage begins, it can provide similar protections if your circumstances change.
5. Keep Documentation of Your Inheritance: Maintaining proper documentation is key to protecting your inheritance. If you need to prove that certain assets are part of your inheritance and not marital property, clear records will make the process smoother. What to document:
Inheritance Documentation: Keep records such as wills, trust documents, or proof of distribution showing the source of your inheritance.
Account Statements: Ensure you have a detailed paper trail showing where the inherited funds were deposited and how they were used.
6. Consult a Professional: Divorce and property division laws can vary by state, and inheritance disputes can become complex. It’s essential to consult a Certified Divorce Financial Analyst (CDFA) or an attorney who can guide you through the financial and legal aspects of keeping your inheritance separate during divorce.
Inheritance can remain separate property during a divorce, but only if it’s handled correctly. By avoiding commingling with marital funds, keeping documentation, and considering legal agreements like prenuptial or postnuptial contracts, you can protect your inheritance and ensure it remains yours. Consulting with financial and legal professionals can provide the guidance you need to safeguard your assets during this challenging time.
