A divorce can be a gargantuan task with huge life-changing questions like “who get’s custody” and “who should live in the house?” In addition to these paradigm-shifting decisions, there are other financial concerns that also deserve a good deal of attention. These include investments, retirement benefits and inheritance. This last one is the focus of this blog post.
You may have inherited money or assets from a deceased family member or you may plan on bequeathing an inheritance to your children. Whatever your situation, it’s important to be ready for procedural requirements when dealing with issues of inheritance in a divorce.
Separate Property
One of the trickiest aspects of a divorce is figuring out who gets which assets. Broadly speaking, assets fall into one of two categories: either marital property or separate property. The former is subject to splitting, while the latter may not be split. An inheritance is generally considered separate property and thus may not be divided between the spouses. Although, it needs to be stressed, the law varies from state to state.
Varying Laws
Many states follow the common law property system when distinguishing between separate and marital property. According to this system, if a spouse purchases a car and puts it in his or her name then the vehicle belongs to that person and would be considered separate property in a divorce. However, if the car is in both spouses’ names, it would be considered marital property.
Other states follow the community property system, meaning certain investments or assets acquired by an individual spouse would be considered marital property in a divorce. However, inheritance is often excluded from this system.
How You Use the Inheritance
In most cases, it doesn’t matter if you’ve received the inheritance prior to or after the marriage. But the way that you handle the inheritance funds can impact how those funds get distributed in a divorce. For instance, you may choose to deposit the inherited funds into a joint bank account, or you may choose to use the money to renovate your home. In such cases, your inheritance could be treated as marital property, though, once again, it depends on the statutes in your state.
Giving an Inheritance
If you plan on giving your children an inheritance, the court will want to consider the children involved, the specifics of the divorce and the underlying state law. Generally speaking, spouses may do whatever they want with separate property, and once marital property is divided, they may distribute those assets however they wish. Thus, if you want to bequeath an inheritance to children from outside the marriage, you can do this with a trust or will.
If your child is a married adult, you may want to put the inheritance solely in his or her name and advise your child not to intermix the funds with marital assets. Additionally, placing the inheritance in a trust can help protect your child in the event that he or she gets a divorce.
An Attorney
Protecting your inheritance in a divorce can be incredibly stressful. Whether you’re fighting to keep an inheritance or hoping to pass along assets to your children, an experienced divorce attorney can help ensure the best possible outcome.
