Dealing with divorce is stressful enough, but adding inheritance money into the situation complicates things further. Of course, you want to protect your inherited funds, keeping them separate from your spouse, but what happens in court?
Is a spouse entitled to inheritance money in any situation, or are there exceptions to the rule?
Fortunately, the courts usually favor the inheriting spouse, but there are ways you can mix it up and accidentally give your spouse access to the funds.
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Is a Spouse Entitled to Inheritance Money?
The good news is spouses aren’t automatically entitled to your inheritance money. In most states, an inheritance is considered separate property. However, there are exceptions that you must understand if you want to keep your inheritance separate during marriage or divorce.
Sharing of Assets During Marriage
The most considerable inheritance risk occurs when you share the assets during the marriage. Sharing assets means you use the money for the greater good of your marriage. For example, if you use the funds to buy a house, take your family on vacation, buy a car, or deposit it into a joint account, you co-mingled the funds, and they are no longer separate assets.
Most courts consider any assets brought in during the marriage as shared assets. If your state is a community property state, the assets get split 50/50. If your state is an equitable distribution state, the assets must be divided fairly, which may mean 50/50, or they may be split another way. Either way, you divide the assets.
Fortunately, there are exceptions for inheritance funds that keep it fair for parties who inherit funds meant for their use and not their spouse’s. However, if you aren’t careful, the inherited property can become marital property.
When Does an Inheritance Become Marital Property?
Typically an inheritance is separate from the marital property when there is clear intent that the money is for only one spouse. But when you’re married, it is easy to mix things up and make an inherited asset, marital property, without realizing it.
The key is the intentional use of the funds, keeping them in a separate bank account and not co-mingling the funds with any marital funds, or they could be claimed as marital assets.
What Is Martial Property?
Marital property is any property or assets you acquire together in marriage. Items considered marital property include income, savings, investments, or any other money brought into the marriage and used on behalf of both parties. If you divorce, the courts divide the assets based on state laws, whether in a community property state or an equitable distribution state.
Either way, the money gets split between both parties, but this only applies to marital assets.
What Is Non-Marital Property?
Non-marital property refers to assets acquired during marriage intended for one spouse, not both. An inheritance is a great example of non-marital assets because it’s bequeathed to one spouse, not both. As long as only one person benefits from the funds, it doesn’t become a part of the funds split in a divorce.
However, non-marital assets can quickly become marital assets if you aren’t careful. If you co-mingle the assets with your other marital assets, they become part of the marital property. For example, if you deposit the funds in a joint bank account or use the funds for joint use, it’s no longer separate property.
It can feel natural to use the funds throughout your marriage, but if you’re worried about a potential divorce, it could cause you to lose a portion of your inherited property.
Stages of Marital Effect on Inheritance
Before receiving an inheritance, it’s important to understand how different stages of marriage can affect it.
Inheritance Before Divorce
When you receive an inheritance while married, you should keep it separate. Like I said earlier, if you co-mingle the funds, they become a part of the marital assets, and if you divorce, your spouse would be entitled to a portion of it.
Inheritance During Divorce
Typically, money inherited during divorce doesn’t become part of the marital assets. If the money was left to one spouse, there’s a very low likelihood you’d co-mingle the funds if you’re already mid-divorce so that the inheritance wouldn’t become a part of the divorce settlement.
Inheritance After Divorce
It usually doesn’t affect your divorce agreement if you receive an inheritance after the divorce. A spouse can claim any part of your inheritance after divorce if you’re paying child support or alimony, and your ex-spouse claims you have more money and can afford higher support.
To claim this, you would have to go back to court, and a judge must side with your ex-spouse, who would need a solid case to make it happen.
How to Protect Your Inheritance From Your Spouse
The key to receiving an inheritance is protecting it from your spouse in the case of divorce. So, if you’re worried about your marriage or don’t want the hassle of giving up your inheritance or some of it because it became a marital asset, here’s what you must do.
The Battle of Divorce and Inheritance
You don’t have to worry about sharing your inheritance in most states. It has a separate status because it was left to you, not your spouse. However, if your spouse can prove you made the asset part of the joint property, your spouse may have rights to the money.
To avoid this:
- Keep the property separate.
- Don’t make the money part of the marital funds.
- Don’t use the funds for anything related to your spouse, including paying bills, taking vacations, or using the money to buy joint property.
Avoid Non-Monetary Contributions
If you receive property instead of money, there is still a risk your spouse could get half if you aren’t careful. Even if your spouse doesn’t put money toward the property you received but spends time improving it, judges consider it a non-monetary contribution, and the property becomes part of the marital assets.
If you inherit a property, keep it separate from your spouse. If you have the home improved or any work done on it, hire someone, and don’t use the space as a space for you and your family, or it becomes a part of the property division in court.
Get a Prenup
The easiest way to protect your inheritance is to sign a prenup before marriage. This is an agreement that both parties sign regarding the financial assets you bring to the marriage. You can draft a prenup to protect only the inheritance, or it can cover other assets too.
Get a Postnup
If you receive an inheritance after getting married or didn’t get around to drafting the prenup before, you can draft a postnup, which is the same as a prenup, except you’re already married.
The agreement and wording are the same, as is the outcome. You protect your funds from your spouse in case you get divorced. While no one likes thinking about their marriage failing, it’s best to protect your funds just in case.
Getting an Attorney
The most important way to protect your inherited property is to hire an attorney to advise you on the best way to protect your inheritance. For example, you might sign a prenup or postnup, or your attorney can advise you on how to keep the funds separate so they aren’t subject to division if you divorce.
Does Each State Have Its Own View of a Spouse’s Entitlement to Inheritance Money?
Most states agree that inherited property is only for the intended person. However, they also agree that if the funds are co-mingled, they become a part of the divorce. How the courts divide the assets depends on whether you live in a community or an equitable distribution state.
Can a Future Inheritance Be a Part of a Current Divorce Settlement?
In most cases, a future inheritance cannot be a part of a divorce settlement. Because an inheritance is for one intended person, an ex-spouse doesn’t have rights to it. So the only way an ex-spouse could receive a part of the assets is to take you back to court and claim you have a higher income and can afford a higher amount of child or alimony support.
What Mistakes Do Spouses Make That Put Their Inheritance at Risk?
Spouses that aren’t thinking about getting divorced or who don’t think about not sharing their inheritance often co-mingle the funds, not realizing that this makes it a marital asset. The minute your spouse benefits from the funds, they become co-mingled assets.
The Bottom Line: Does Inheritance Have to Be Shared With a Spouse
When you wonder, “is a spouse entitled to inheritance money,” the answer is that it depends. If you keep the funds 100% separate and never co-mingle them, then your spouse doesn’t have a right to them. However, if one spouse inherits funds and uses them for the benefit of both partners, it becomes a part of the marital funds and split in the divorce.
Samantha Hawrylack is a personal finance expert and full-time entrepreneur with a passion for writing and SEO. She holds a Bachelor’s in Finance and Master’s in Business Administration and previously worked for Vanguard, where she held Series 7 and 63 licenses. Her work has been featured in publications like Grow, MSN, CNBC, Ladders, Rocket Mortgage, Quicken Loans, Clever Girl Finance, Credit Donkey, Crediful, Investing Answers, Well Kept Wallet, AllCards, Mama and Money, and Concreit, among others. She writes in personal finance, real estate, credit, entrepreneurship, credit card, student loan, mortgage, personal loan, insurance, debt management, business, productivity, and career niches.