How to Protect Inherited Assets During Divorce

Understanding Inherited Assets and Divorce

When facing a divorce, one of the most important questions to ask is how to protect inherited assets. Inherited property, whether it’s a family heirloom, a home, or a sum of money, can be a critical part of your financial future. However, in many cases, inherited assets can become entangled in the divorce process. Knowing how to safeguard these assets is crucial for anyone who wishes to maintain control over their inheritance.

1. What Are Inherited Assets?

Inherited assets are properties or wealth that you receive from a deceased relative or friend. This can include cash, real estate, family heirlooms, or stocks. The key factor that distinguishes inherited assets from other forms of property is that they come to you as a gift from someone who has passed away. This is important because, in some states, inheritance laws treat these assets differently than property that is acquired during a marriage.

However, just because something is an inherited asset doesn’t automatically mean it is shielded from division in a divorce. The way the asset was treated during the marriage, how it was maintained, and how it was co-mingled with marital property can impact its protection.

2. The Legalities of Inherited Assets in Divorce

In many states, inherited assets are considered separate property, which means that they are not subject to division during a divorce. However, this is not always the case. Here are some factors that could affect the protection of your inherited assets:

2.1 The State You Live In

Different states have different laws regarding the division of property in divorce. The two main types of property division are:

• Community Property: In community property states, any property acquired during the marriage is considered jointly owned and will likely be divided equally in the event of a divorce. However, inherited property may still be excluded if it was kept separate and not mingled with marital assets.
• Equitable Distribution: In equitable distribution states, assets are divided based on what the court deems fair. In some cases, this could result in inherited assets being divided if they have been co-mingled with marital assets or if the court finds that doing so is fair to both parties.

2.2 The Role of Co-Mingling

One of the biggest threats to inherited assets is co-mingling. Co-mingling occurs when inherited property is combined with marital property. For example, if you inherit a home and then you and your spouse use marital funds to pay the mortgage or make significant improvements, the home may be seen as marital property. This could cause your inherited asset to be divided during the divorce.

2.3 Keeping Inherited Assets Separate

The best way to protect your inherited assets is to keep them separate from marital property. This means keeping inheritance funds in a separate account, not using them for joint purchases, and not allowing your spouse to have any ownership or claim to them. This will make it easier to demonstrate that the asset is separate and should not be divided during a divorce.

3. How to Protect Inherited Assets During Divorce

Now that you understand how inherited assets are treated in divorce, here are some key strategies to help protect your inheritance:

3.1 Create a Prenuptial Agreement

A prenuptial agreement is one of the most effective ways to protect your inherited assets before entering marriage. By explicitly stating in the agreement that any inherited property remains separate, you can avoid confusion or dispute over assets in the event of a divorce. A prenup is especially useful if you have significant family wealth that you wish to keep within your family line.

3.2 Keep Records of Your Inheritance

Documenting your inheritance is crucial for proving that it is separate property. This includes keeping records of the original inheritance, how the asset was obtained, and any transactions involving the asset. Having a paper trail can be especially important if the inherited asset has been used for family expenses or has increased in value.

3.3 Don’t Use Inherited Assets for Marital Expenses

To ensure that your inherited assets remain protected, avoid using them for joint purchases or marital expenses. If you inherit money, try to keep it in a separate account, and refrain from using it for anything that benefits both you and your spouse. Similarly, if you inherit a house, don't use marital funds to pay for the home’s upkeep or improvements.

3.4 Consider Creating a Trust

If you have significant assets that you want to protect, consider placing your inheritance in a trust. A trust can help ensure that the asset is kept separate from marital property and cannot be divided in a divorce. Trusts also provide added protection in the event of legal challenges.

4. What to Do If Divorce Is Imminent

If you’re already in the process of getting a divorce and you’re concerned about protecting your inherited assets, it's not too late to take action. Here are a few steps you can take:

• Consult with a Divorce Lawyer: An experienced divorce attorney can help you navigate the complex legal aspects of asset protection and advise you on the best course of action for your situation.
• Separate Your Inherited Assets: If possible, take immediate steps to separate your inherited property from marital assets. This could involve moving funds into a separate account or removing marital funds from any jointly owned property.
• Provide Evidence of Separate Ownership: Present documentation that proves the inheritance is separate, such as inheritance records, bank statements, or a separate property agreement.

In many cases, taking the right steps early on can prevent your inherited assets from being unfairly divided during a divorce. Working with a skilled divorce lawyer can help ensure that your inheritance remains intact.

If you need expert legal advice on how to protect your assets during a divorce, be sure to reach out to Fred Miller Lawyer for personalized guidance and support.