Your uncle left you a nice inheritance and naturally, you and your spouse are thrilled. Perhaps you use the money to buy a house or dutifully deposit it into your retirement account. But what happens to the funds if you and your spouse decide to split up? Can an inheritance be taken in a divorce?

Usually not, but there are some circumstances in which an inheritance would be divided in a divorce. Learn when that can happen in this guide from Blake Harris Law.

Inheritance as Separate Property

Is inheritance separate from marital property? Find out below.

Classification of Inheritance in Divorce Proceedings

Typically, inheritance is classified as separate property. That’s true whether your relative left you the money before or during your marriage.

Legal Protections for Inherited Assets

If inheritance is classified as separate property in your state, it is legally protected from division in a divorce. That means it’s yours to keep, and you do not have to split it with your soon-to-be ex.

Differences Between Inherited Property and Marital Property

Inherited property, as the name implies, is a property you inherited either before or during your marriage. Your relative left the property to you, thus, you’re the one who inherited it. Inherited property can include cash, savings accounts, real estate, vehicles, etc.

Marital property is a property you acquired with your spouse during your marriage. Like inherited property, it can include houses, cars, cash, and so on.

Commingling and Its Impact

man making two stack of coins

Can an inheritance be taken in a divorce? Typically, no, but all bets are off if you commingle the inheritance with marital funds.

How Commingling Affects Inheritance in Divorce

“Commingling” means that you’ve mixed your inheritance with marital property. When this happens, your separate property becomes marital property, which is called “transmutation.” Should this happen, your inheritance (or at least part of it) could be taken in a divorce.

Legal Implications and Outcomes

Transmutation can occur if you put your inheritance into a bank account that you share with your spouse. If you do that, it would be hard to argue that your inheritance is separate property.

If you buy a house with your spouse, that home becomes marital property. In many states, this is true even if your spouse’s name isn’t on the deed. Because your inheritance is tied up in the house, you would have to split it in a divorce.

Suppose that you purchase a house with your inheritance, don’t put your spouse’s name on the deed, and neither of you live there — think a vacation home or rental property. Your spouse contributes to the house’s upkeep and makes improvements that boost its value. A judge might decide that even though the house isn’t marital property, that increase in value is part of your marital estate and thus subject to division in divorce.

State-Specific Laws

Property division laws in divorce vary significantly by state. Learn about the difference between community property and equitable distribution states and how that might affect your inheritance.

Treatment of Inheritance in Community Property vs. Equitable Distribution States

In community property states, courts operate under the premise that marital property should be split down the middle (50% going to each spouse), or as close to equal as possible. Divorce courts don’t usually consider the needs and assets of each party.

In equitable distribution states, spouses usually keep everything that is separate property and divide the rest. Note that “equitable” does not necessarily mean “equal.” A judge might give more assets to a spouse to make things fair. For example, if one spouse earns considerably less, or they have a medical condition that prevents them from working, the judge might give them a bigger share in the divorce.

In both community property and equitable distribution states, inheritances are not split with your spouse unless you have commingled the funds with marital assets in some manner.

Key Variations in Jurisdictional Approaches

There are nine community property states:

  • Arizona
  • California
  • Texas
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Washington
  • Wisconsin

Forty states use the equitable distribution approach. Alaska is an outlier as it is both a community property and an equitable distribution state.

Protecting Inheritance

inheritance document approved by lawyer

If your relative has left you an inheritance, you’re probably wondering if it’s possible to protect it. Can an inheritance be taken in a divorce? You have several options for safeguarding your inheritance, including prenuptial/postnuptial agreements and putting the funds into a trust.

Prenuptial and Postnuptial Agreements

If you haven’t gotten married yet, now is an excellent time to set up a prenuptial agreement. Many people balk at doing so because by creating one, it seems like they’re already preparing for an inevitable divorce. However, creating a prenuptial agreement is one of the smartest things you can do. It protects both parties from financial loss should a divorce become necessary.

In your prenuptial agreement, you can outline that any inheritance gifted to you before or during the marriage is yours to keep. Your partner can do the same.

If you’re already married, you can create a postnuptial agreement. It’s essentially the same thing as a prenuptial agreement, except it’s created after you’ve said your vows. Couples sometimes create postnuptial agreements once they’ve had children and agree that one spouse will quit their job to care for them. Having a postnuptial agreement in place protects the stay-at-home spouse from financial ruin in a divorce.

Estate Planning Strategies

Another option is to speak with an estate planning lawyer or an asset protection attorney who can help you put your inheritance into a trust. Trusts offer robust protections from tax liabilities, lawsuits, and creditors. If the trust is only in your name, it’s difficult to argue that the inheritance is marital property.

In addition to your inheritance, you can place any other asset you like in a trust, including:

You can choose between a domestic and an offshore trust. Domestic trusts are based in the United States, while offshore trusts are located in jurisdictions such as Curacao, Nevis, and the Cook Islands.

Domestic trusts may seem like a safer bet, but they can and have been compromised. That’s because it’s much easier for a creditor to access a domestic trust than one located overseas.

Additionally, domestic trusts fall under U.S. laws. Offshore jurisdictions tend to have stronger privacy laws compared to the U.S. Thus, if you care about protection from creditors and legal judgments, an offshore trust is the better choice.

Court Considerations and Strategies

How do courts split an inheritance in divorce if division is necessary? Are there any legal strategies you can use to protect your inheritance? We’ll go into these topics next.

Factors Considered by Courts

If you’re in an equitable distribution state, the court won’t simply take your inheritance and divide it down the middle. It will first consider the needs and assets of each spouse. For example, suppose you’re a teacher and your spouse is a software engineer. Because of the income disparity, the court might allow you to keep more of your inheritance.

Courts will also consider:

  • Any medical conditions you have
  • Your ability to retrain for new work if you’ve been out of the workforce for several years
  • Your age
  • Who has primary custody of the children
  • Whether one spouse has left their job to care for children

Legal Strategies for Addressing Inheritance in Divorce

If the court determines that your inheritance is marital property, you don’t necessarily have to split it with your ex. You may be able to convince them to give up their share in exchange for something else, such as a vehicle or the marital home. A good divorce attorney can help guide you through property division negotiations.

Protect Your Inheritance With Blake Harris Law

Can an inheritance be taken in a divorce? Not if you employ strong asset protection strategies with the help of Blake Harris Law. Attorney Blake Harris can explain how to safeguard your inheritance in the event of a divorce. To learn more, contact Blake Harris Law now.