How Can I Protect an Inheritance During a Divorce?

If you have inherited a significant amount of money or property from a family member or loved one, it is important that you take the necessary steps to protect those assets in the event that you and your spouse decide to get a divorce. In most states, including New Jersey, only marital property is divided between the two spouses during the divorce process. In most cases, an inheritance is considered separate property. However, there are circumstances where the line between separate property and marital property can become blurred. For example, if you use funds from an inheritance to buy a house that is in you and your spouse’s names, those funds will become a marital asset. If you have questions or concerns about how to protect your inheritance during your divorce, contact a highly skilled divorce lawyer.

What Is the Difference Between Marital Property and Separate Property?

The division of property can be an extremely complicated process, particularly if the couple owns a significant amount of investments, real estate, and other assets. Generally speaking, marital property is anything that you or your spouse earned or acquired over the course of your marriage, which may include some or all of the following:

  • Real estate, including your primary home, vacation homes, businesses, and investment properties
  • Bank accounts, stocks, and bonds
  • Pensions, stock options, profit-sharing plans, and other retirement benefits
  • Vehicles, including cars, boats, and aircraft
  • Life insurance policies
  • Partnership interests and business assets
  • Furniture, jewelry, art, and other valuable items
  • Lottery winnings

Separate property belongs to one spouse and is not subject to the equitable distribution of property. The following are examples of separate property:

  • Any property that a spouse owned before the marriage
  • Inheritances or gifts that a spouse received before or during the marriage
  • Property that both spouses agree is separate. This is usually agreed upon through a legally valid prenuptial or postnuptial agreement.
  • A portion of a personal injury award that is meant to compensate the injured spouse’s pain and suffering.

What Are the Different Types of Assets That Are Divided in a Divorce?

Before a couple’s assets can be divided, they must identify the different types of assets that they have, and whether they are considered marital property or separate property. The following are examples of the different types of assets and how they are divided:

  • Vested asset: This is something that you are sure to get in the future.
  • Unvested asset: This is a form of property that has conditions that will determine if and when you receive the asset. An example of an unvested asset is a pension. You must be employed for a certain period of time before you are able to collect your pension. You cannot collect your full pension until you reach retirement age. A pension is generally considered marital property and subject to equitable division during a divorce.
  • Expectancy interest: This is when you think you might receive something that is not yet in your possession, but it is not guaranteed. An inheritance is an example of expectancy interest because the person leaving the inheritance can change their mind about the details of the inheritance, the amount that you will receive, or whether you will receive anything at all. In most cases, inheritances are not divided in court because the factors are speculative and imprecise, making them difficult to rule on.

Is An Inheritance Always Considered Separate Property?

In most cases, an inheritance is considered separate property, which means that your spouse is not entitled to any of your inheritance in the divorce settlement. This is true whether you received the inheritance before or after you got married. However, there are circumstances where inherited separate property becomes marital property, which means that your spouse may be entitled to some or all your inheritance.

As the beneficiary of an inheritance, you have control over that property. That means that you can keep it separate, or you can convert it to marital property. This process is called a transmutation of property. For example, if your parents left you their house in their will, and you put your spouse’s name on the deed, the house will be considered marital property. Even if you did not put your spouse’s name on the deed, if you used marital funds to pay for home improvements, the increase in the house’s value may be subject to equitable division in a divorce.

What If My Inheritance Was Commingled into Community Property?

When one spouse inherits a large sum or money, or a valuable piece of property, they may wish to convert the inheritance into marital property by commingling those assets. There are several ways to do this, based on the type of inheritance. For example, if you inherited $100,000 from a deceased family member, and you deposit those funds into a joint savings account that you share with your spouse, those funds become commingled. In addition, if your spouse inherited a piece of land from their grandparents, and your spouse sold the property and used the proceeds to make significant renovations to your family home, that inheritance is now commingled.

Divorce is probably the furthest thing from your mind when you first get married. As you start to build your life together, you may not think twice about sharing your inheritance with your spouse or using it toward a major purchase like a car or a new house. However, it is recommended that you protect your inheritance by keeping it separate from all marital property. If you commingled assets from an inheritance, it may be possible to reverse that action, but it will not be easy. You will need to prove that the inheritance belonged to you and that you did not intend to mingle those assets.  You will need to trace ownership of the asset and demonstrate that it was never mixed with marital assets. If you deposited funds from your inheritance into a joint account, the court may consider them marital funds, even if you only deposited the money for a few days while you opened a separate account. You can make the argument that you only put the money in the joint account to keep it in a safe place until the separate account is ready, but it can be difficult to prove that you did not intend to treat the money as a marital asset if you deposited it into your joint account. A skilled divorce lawyer can assist you with obtaining the evidence you need to reclaim sole ownership of your inheritance.

What Other Steps Can I Take to Protect My Inheritance?

Avoiding commingling is the best way to protect your inheritance. However, there are other steps you can take to ensure that your spouse is not entitled to any of your inheritance during the divorce. Ultimately, you are urged to keep your inheritance separate from all other marital property. Make sure that you save all documentation that proves that the inheritance is meant for you, and that it was not a gift to you and your spouse. If you have children, you can protect your inheritance by placing the funds into a trust and listing your children as the only beneficiaries. While this could limit your ability to access, sell or transfer the assets, it will protect your inheritance from your former spouse. While there are a range of tools and other resources available online, it is highly recommended that you consult with a divorce lawyer who handles estate planning and will ensure that your inheritance is protected.

What If I Receive an Inheritance After the Divorce is Final?

Once your divorce is final and you have both signed the divorce papers, any property or assets you acquire belongs to you, unless the divorce settlement agreement specifically states that your spouse is entitled to a percentage of those assets. While it is unlikely that your former spouse will be legally entitled to an inheritance that you receive after the divorce, acquiring a significant amount of money or property may impact the amount of alimony or child support that you are responsible for paying. A judge may increase the support levels if your financial circumstances have changed significantly. Many divorce settlement agreements include provisions that allow for modifications. If you have been receiving alimony payments from your spouse, and you recently received a large inheritance, he or she may request a payment modification as a result of your change in financial circumstances.

Somerville Divorce Lawyers at Lyons & Associates, P.C. Protect Clients’ Inheritances During a Divorce

If you are going through a divorce, and you have a significant inheritance that you want to protect, do not hesitate to contact our experienced Somerville divorce lawyers at Lyons & Associates, P.C. Our skilled legal team will address all your questions and concerns and ensure that you maintain complete ownership of your inheritance. We have a proven track record of handling complex financial issues and securing successful outcomes for our clients. To schedule a free, confidential consultation, call us today at 908-575-9777 or contact us online.