Assets or items you inherited directly, whether before or during your marriage, are generally considered separate property by the courts. That means you are considered the sole owner, and the assets aren't in danger during your divorce. Probably. It depends — and that's the problem many individuals face when they decide on divorce.
Whether you're going a traditional route or opting for the ease of online divorce tools, understanding where your inheritance falls and how to protect it is important.
Who Owns Inherited Assets?
Ownership of inherited assets depends first on the intent with which the items were bequeathed. If it's obvious that the inheritance was meant for one person, then that person typically retains sole ownership of the assets.
This is true in both common-law property and community property states. If estate documents or other evidence seem to indicate that items were bequeathed with the intent of benefiting both individuals in a marriage, however, the assets could be considered joint property.
The Risks of Commingling Inherited Assets
Regardless of how ownership of inherited items begins, you can convert them into community property if they are commingled. Commingling assets means that you integrate them in a tangible way with jointly held property within the marriage. Some examples of commingled property include:
- An aunt left her niece $5,000. The wife deposited those funds into a joint savings account she owned with her husband.
- Great grandma left a husband a piece of land. The husband sold the land and used the proceeds to make renovations to a home he owned with his spouse.
- A father leaves his vintage automobile to his daughter. She puts her spouse's name on the title.
- Some illustrations of when commingling does not occur include:
- A husband receives $10,000 from a relative. He deposits it into an investment account in his name only.
- A wife receives a home as part of an inheritance. She does not add her spouse to the deed, and she rents it out while she and her spouse live in another home. (Note that while the home, in this case, isn't considered shared property, the rental income might be considered joint property if the couple lives in a community property state.)
- A wife inherits her grandmother's china. She places the china on display in the home she shares with her husband, and they both use the items from time to time. She still retains sole ownership if the intent behind the inheritance was for her alone to end up with the china.
How Can You Protect Your Inheritance from your spouse?
One of the best ways to protect your inheritance is to keep it separate from all marital property. Don't deposit it into an account you share with your spouse or use it to fund joint purchases. If you previously commingled assets from an inheritance, and you're looking to reverse the damage before you go through divorce, you could be looking at a difficult burden of proof.
For the court to consider previously commingled inheritance assets as separate property again, you have to show, first, that the inheritance was only meant for you and, second, that you didn't intend to mingle the assets.
Proving that you didn't mean to share assets that you deposited into a joint banking account, for example, can be extremely difficult, though not impossible. If you've already commingled inherited wealth, consider talking to a family law attorney about the evidence and arguments required to reclaim sole ownership.
In addition to avoiding commingling, you can:
- Save all documentation that proves the inheritance was intended for you alone and not as a gift for both spouses
- Place your inheritance in a trust with yourself or your children — and not your spouse — as the beneficiary
While DIY divorce via online tools and templates is very possible, most legal professionals don't recommend that you handle estate planning and trusts completely on your own, especially if assets are at stake. In fact, if you are dealing with investments and other accounting matters, it's a good idea to seek some professional assistance, even if you plan on handling other parts of your divorce alone.
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Don't Get Overwhelmed by the Details
If you're considering divorce, it's easy to get overwhelmed once you start thinking of all the details involved. Instead of putting off action because it seems too stressful, consider signing up for It's Over Easy to find out how online divorce tools can help you get through each step of the process and get on with your life.
Self-education on all financial matters is important during a divorce. Major financial decisions can be overwhelming under any circumstances, but luckily there are affordable and informative resources to help you understand divorce and money, including dividing debts, determining the actual value of real estate, and deciding on how to calculate alimony payments.
Go to this page about online divorce to learn more.