When most couples get married, they’re only thinking about building a new life together, and don’t consider what to do if things don’t work out. However, nearly half of marriages in the United States end in divorce, forcing difficult conversations about property and shared assets. But what about an inheritance you receive during a marriage? Typically, an inheritance has unique protections and rights, with several factors that may influence how a divorce affects an inheritance, including whether the property is separate or martial property and where you live.
Separate vs. Marital Property
Generally, there are two types of property for married couples: separate property and community property. Separate property belongs to only one spouse. This typically includes property owned before marriage or after divorce or is property acquired during the marriage, but remained in one spouse’s name and not used for the benefit of the other spouse or marriage. Marital property, also known as community property, is usually all property acquired during marriage. Keep in mind states have varying laws around community and separate property, so consult with an attorney to understand property types in your state.
Is an Inheritance Separate or Community Property?
In most cases, an inheritance is not subject to equitable distribution because inheritances are not considered marital property. Instead, most states treat an inheritance given to one spouse during marriage as separate property. However, using that inheritance for shared assets within the marriage may affect whether the inherited funds become community property.
Commingling the Inheritance
For many states, once commingling of the inheritance occurs, the funds are no longer protected as separate property. Commingling could include the spouse depositing the inheritance into a joint bank account or using the funds for joint expenses such as renovations on the shared marital home. If commingling occurs, the inheritance may be eligible for division during divorce proceedings – even if the spouse received the inheritance prior to marriage. State laws dictate how to treat inheritances during divorce proceedings, so consult with an attorney about the laws for your state.
Protecting Your Inheritance During Divorce Proceedings
While not always a perfect solution, a prenuptial agreement can insulate inherited property and assets from division during divorce proceedings. Maintaining separate accounts can help avoid commingling inheritance funds with marital property. If a spouse inherits property such as real estate, keeping the asset titled in one name can protect separately owned property. Again, remember state laws varying in the use of inherited property, so be sure to consult with your attorney.
Divorce changes nearly every aspect of your life, but property and assets often create the greatest disagreements. Contact a Fifth Third Bank financial advisor today to revise your estate plan after divorce.
Fifth Third Bank does not provide tax or legal advice. Please consult your tax adviser or attorney before making any decisions or taking any action based on this information. This information is provided for educational purposes only and does not constitute the rendering of tax or legal advice.
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