How Can I Protect My Inheritance in the Event of Divorce?

You were your Aunt Gloria’s only niece, and she happened to adore you. When she passed away, she left you a sizable inheritance.

Now your marriage is on the skids and you’re concerned that your husband may get part of what Aunt Gloria meant for you alone.

This is a scenario faced by divorcing spouses all over the country. What becomes of the inheritance depends on a variety of factors.

Information often used to determine whom is entitled to the inheritance includes:

  • Is the inheritance considered marital property?
  • Where do you live?
  • Where have you kept the money during your marriage?
  • Do you have a prenuptial or post-nuptial agreement in place?

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Separate vs. marital property

Property is anything that can be purchased or sold. It’s also anything that has value, which includes retirement plans, stocks, bank accounts and cash.

Separate property is anything you owned prior to getting married. When it comes to inheritances and gifts to one spouse, these also can be considered separate property. Let’s say Aunt Gloria didn’t leave you cash, but she left you a home that you rent out. The income from that rental property is considered “separate property,” as well as the property itself, according to the California Courts website.

If you received Aunt Gloria’s inheritance after you and your spouse legally separated, it likely would be considered separate property.

Marital property also is called “community property,” and that term describes anything you and your spouse acquired while you were married. Even debt that you and your spouse acquired during your marriage is marital property that you each will be responsible for.

It is imperative that your inheritance be accurately defined as separate property if you hope to keep all of it in the event of divorce.

State of residence

Some states, including California, are community property states, while others are equitable distribution states. In equitable distribution states, although your name may be the only one on a property deed, your spouse is able to claim an equitable part of that property during a divorce. If proper paperwork isn’t in place to define your inheritance as solely belonging to you, your state of residence may help determine whether the inheritance must be shared when you divorce.

Where have you stored your inheritance?

One thing to consider when protecting your inheritance is where and how you have kept it, according to a “Forbes” article. Is the money that Aunt Gloria left you in a bank account in your name only? Is it in a joint savings account shared with your soon-to-be ex? It matters.

Experts recommend keeping the money in a separate bank or investment account in your name only.

Prenuptial and post-nuptial agreements

A great way to eliminate doubt as to whom Aunt Gloria meant her inheritance to go to is to have a written agreement in place. If you got the inheritance prior to getting married, you could outline ownership in a prenuptial agreement. This type of agreement is made by a couple prior to getting married, and it defines the owners of specific assets, should the marriage end in divorce. You can learn more about prenuptial agreements in this article we recently wrote on the subject.

A post-nuptial agreement is similar to a prenup, in that it defines how a couple’s assets are divided in a divorce. The difference is that this type of agreement is reached after a couple is married.

These agreements are effective ways of shielding your inheritance in the event of a divorce. They also seem to be increasing in popularity. A 2013 survey of American Academy of Matrimonial Lawyers members found that 63 percent of them reported seeing an uptick in prenups in the past three years, according to an article in “The Wall Street Journal.”

Other tips for protecting your inheritance include saving documentation that proves you were the intended recipient of the inheritance. A letter from Aunt Gloria that outlines to whom she gifted the inheritance, or a copy of her gift tax return could come in handy if ownership is disputed in the future.

Learn more

The attorneys at Griffith Young & Lass can assist you with protecting your inheritance. Call today for more information.

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