When Does an Inheritance Become Marital Property?
Updated: Apr 5
It is a rarity for a married couple to receive an inheritance together. Far more common is one of the spouses receiving an inheritance individually, such as from a father or mother. When it comes to understanding your rights with marital property and inheritance, you may have a lot of questions. One question that comes up many times is when does an inheritance become marital property? In the US, almost half of marriages end in divorce. When it comes to your inheritance and marital property, it’s important to understand your options.
Does an Inheritance Have to be Split with a Spouse?
The law considers an inheritance to be a personal gift presented to the recipient. A spouse or domestic partner has no legal claim to your inheritance. Usually, any property or monies inherited during a marriage will stay with the person who inherited should the couple divorce. However, inheritance has to remain separate throughout the duration of the marriage. It needs to be easily identified as belonging to the recipient, or it can lose the “separate” status. When the separate property has been commingled with other marital assets, it is then considered to be partly owned by both partners during a divorce.
When Inheritance Becomes Marital Property
When one spouse receives an inheritance, it remains non-marital property. However, there are some instances when inheritance becomes marital property. For example, if the inheritance is used to purchase a marital home or other marital assets that are placed under both parties’ names, the items purchased become marital property.
Another example of an inheritance that becomes marital property is if you inherit $75,000 from a grandparent, then use it to purchase a new car. The car becomes a marital asset because it was purchased prior to the divorce. If you keep the $75,000 in a separate savings account and do not use it for making a purchase, it remains non-marital property. In cases where you and your spouse or partner are named in the inheritance, they will have a right to part of the inheritance.
How to Keep Inheritance Separate from Marital Assets
Commingled assets or funds are jointly owned by both spouses or partners. Funds that are commingled are easily available for use by both partners. They may be used to pay expenses the couple incurs, or they may be used to pay costs for the non-inheriting spouse. When both partners contribute funds into an account, they become commingled.
When an inheritance is deposited into a joint checking account that both spouses use by making deposits, withdrawals, and writing checks, then the inherited funds become commingled. The inheritance is no longer separate. Instead, the funds are jointly owned and will be divided during a divorce. One way to keep inheritance separate from the marital property is to deposit the inheritance into a separate account that only one of the spouses can access. In this situation, the inheritance is kept separate and will not be divided between the two spouses during a divorce.
What happens, though, if the inheritance is a physical property, like a house? It’s a little more difficult to keep the inheritance separate from marital assets, but it is possible. If both spouses choose to live in the house, then it becomes marital property. To keep the house or property separate, the inheriting partner would need to avoid using joint funds for upkeep or repairs. If the house is designated for use as a rental property, the rental income must be kept separate from other income the couple receives. Otherwise, the inheritance may be considered joint property.
The divorce court often considers the intent of inheritance and whether it was intended to be separate or joint property. To keep the inheritance separate, a spouse needs to retain documents that demonstrate how the inheritance funds were spent. That will be able to show the court that the intent was to keep the funds separate. The court will also consider other types of documentation, such as personal communication. For example, if the spouse of the person who inherited the house personally performs repairs needed on the house, this sweat equity can cause the property to become joint property. In cases where inherited property becomes accidentally commingled and becomes jointly owned or marital property, it is possible to reverse commingling. This will require that evidence be presented to the court to show that it was done by error and that the intent was to keep the property separate.
Ways to Ensure Inheritance Remains Separate Property
It’s important to take specific steps to ensure an inheritance remains separate. Here are a few ways to keep the property separate from marital or community property.
Place monies and investments into separate accounts.
Create a written agreement with your partner acknowledging the separate status of the property or inheritance.
Place the titles to any inherited assets, such as lands or cars, just in your name.
Maintain complete and detailed records of every transaction.
Do you have concerns about how to keep inherited property from becoming marital property? Talking to a financial advisor at Cremé Wealth can help you find the answers to your questions and equip you to make decisions based on the details of your situation. Our team of financial professionals can assist you in considering the various factors so you can make well-informed, educated choices to protect your inheritance.
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The opinions expressed herein are those of Andrew Cremé and not necessarily those of Raymond James. Opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Examples are hypothetical and meant for illustrative purposes only. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we do not provide advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.