Handling Inheritance Assets in Divorce 10

Inheritance received by either spouse during the marriage is generally considered separate property. There are some circumstances, however, in which an inheritance might ultimately be considered marital property under state divorce law.

Tip: When considering how to divide the marital assets and debts during a divorce, you need to know which of your assets and debts are considered marital and which are considered separate (regardless of whether your state follows community property laws or equitable distribution laws). This is important because marital assets are subject to division; separate assets are not.

Separate Property vs. Commingled Assets

Because inheritances are treated as separate property belonging to the person who received the inheritance, those assets may not be divided between the parties in a divorce. If the funds are commingled with other marital assets, however, such that they become virtually indistinguishable from marital assets, the family court will likely NOT consider the inheritance amount to be separate, non-marital property.

For example, if the inheritance is deposited into any joint account along with other joint funds or if it is used to purchase or make improvements to the marital home, it will probably lose its separate property status and will be subject to equal or equitable division upon divorce. Similarly, if one spouse inherits a piece of real estate and marital funds are invested to improve the property, it may be considered marital property.

Inheritance Received Prior to Marriage

The same is true of an inheritance acquired prior to the marriage. It will be considered separate property unless and until it is commingled with joint assets during the marriage (either by adding marital funds to the inheritance account or by using the funds as described above).

If inherited assets are kept separate but appreciate in value during the marriage, the non-inheriting spouse may have a legitimate claim to a share of the increased value (but not to the principal).

Many spouses-to-be with substantial inheritances will choose to execute a prenuptial agreement to make all issues regarding pre-marital, separate property perfectly clear prior to the marriage.

Inheritance Impact on Support

One other way in which an inheritance can impact a divorce is in the support arena. If a spouse has a large enough inheritance that pays regular distributions or dividends, those amounts can be considered income for purposes of determining spousal support and child support.

Future Inheritance

We often hear questions regarding the expectation of inheritances after a divorce. If one spouse expects to receive a substantial inheritance in the not-so-distant future, it can often be difficult for the other spouse to swallow an equal division of marital property. However, speculation as to future inheritance is just that – speculation. The bequeathing party might not pass away for many years. The inheriting spouse might die before the bequeathing party. The will can be changed; the trust can be changed.

The court will not consider the spectre of future income via inheritance when establishing support orders (and dividing property in an equitable distribution state) because of the indefinite nature of the financial situation.

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