Money and assets can be a big source of marital discord, and they’re also often a big source of contention in a divorce situation. And if you have received an inheritance during your marriage, that can be an additional source of stress if you want to protect it and not see it split up in the divorce settlement.
The good news is that when you receive an inheritance that is specifically left to you – not you and your spouse or to your family in general, but to you alone – that money or asset is legally yours, both during the marriage and afterward. Inheritances are not community property; they belong only to the beneficiary of the inheritance.
However, don’t let that fool you into thinking that you don’t have to do anything to keep your inheritance intact. Your inheritance is yours, yes, but once you receive it, there are several things you can do that could change its status from your sole property to marital property. If you have an inheritance or you’re expecting to receive one, even if you’re not currently planning to divorce, it’s important to understand what you need to do to maintain that inheritance as your own separate property so that you won’t lose it if you do end up divorcing.
Commingling is what it’s called when you mix your inheritance with your marital property. Once an inheritance has been commingled, it ceases to be your separate property and becomes marital property instead. A straightforward example of commingling would be if you received a monetary inheritance, and instead of keeping it separate, you deposited the check into the joint checking account that you share with your spouse – perhaps the account that both of you also deposit paychecks and other income into.
Once you’ve done that, the inheritance money is no longer separate from the marital money. It becomes joint property. So, in a community property state, it will be divided 50/50 between the two of you, just like the rest of the money in the account will be. And in an equitable distribution state, it will be divided the way that the judge thinks is fair – not necessarily 50/50. So, for example, if you keep the house, your spouse might get to keep more of the money in the joint account to make up for the equity that they’re losing in the house, even if that includes your inheritance money.
To avoid commingling, just keep your inheritance separate from the joint money and property. If you inherit money, put it in a separate account under your own name. If you inherit a vehicle, register it in your own name.
Watch Out for Non-Monetary Contributions
Of course, commingling isn’t the only thing that might put your inheritance up for grabs in a divorce. Another common mistake is accepting non-monetary contributions from your spouse. Another phrase for non-monetary contributions that you might recognize is “sweat equity.”
For example, if you inherit a house and plan to sell it, but find that the house needs a lot of work before you can put it on the market, there are a number of ways you can get that work done. But if you choose to have your spouse take their tools to the inherited house and fix the roof, or take their paintbrushes to the inherited house to paint the walls, that work that your spouse is doing may be giving them sweat equity. Their time, tools, and labor are non-monetary contributions to your inherited property – and those contributions may give them a stake in that property. Even if you sell the home and keep the money in a separate account, during a divorce your spouse may be able to argue that they’re entitled to some of that money because of the work they put into it – work that enabled you to be able to sell it for the amount that you did. And a judge may very well agree.
Transmutation is similar to commingling, but it happens gradually rather than all at once.
For example, if you inherit a car, you might register that car in your name and think of it as your separate property. But if you use funds from your joint checking account to pay for upkeep and repairs on the car, then you are, bit by bit, transforming it into a marital asset rather than a separate asset.
When does an asset become a joint property instead of a marital property? It can be hard to say. Paying for one oil change out of your joint checking account might not be enough to turn the car into a marital asset, but what if you use a joint checking account to replace the transmission? Or pay for a new radiator with a joint credit card? Even if you never use joint funds for a large car repair, using marital funds for years to pay for the oil changes and tire rotations will eventually render that car a joint asset.
And of course, that might be fine if the car is an everyday vehicle. If you each have a car, it’s likely that you’d keep the one you normally drive in a divorce, and if you’ve had the car for years, your spouse might not be motivated to fight about the car. But what if the car is a valuable antique or classic? In that case, it might be more important to you to hang on to it and your spouse may be more motivated to fight for it. And if you’ve spent a lot of marital funds restoring it, then your spouse may have a right to at least some of the car’s value.
Dealing with an inheritance in a divorce can get messy, and a lot will depend on how you’ve handled the inheritance since you received it. If you need help defending your inheritance in a divorce, a legal resource group can help. There are defenses, even if your inheritance is somewhat entangled with your marital property. For example, if your spouse made monetary or non-monetary contributions to your inheritance against your wishes, you can argue that you always intended the property to be separate. A legal resource group like National Family Solutions can evaluate your case and help you prepare your defenses for court, enabling you to represent yourself in obtaining a divorce settlement.