Assets inherited by one partner in a marriage can be considered separate and owned only by that partner. However, inheritances can be ruled as marital property jointly owned by both partners and, therefore, subject to division along more or less equal lines in the event of a divorce. The difference is how and whether the inherited property is shared between the spouses. If it is kept strictly separate during the union, it is likely to be considered still separate if the union dissolves.State laws govern the way inheritances are treated in marriage. These laws and practices vary widely between states, so the services of a financial advisor can be extremely helpful.
When an Inheritance Can Become Marital Property
If you’re married and receive an inheritance then there is a chance that it could be considered marital property immediately upon your ownership. There are two primary ways that an inheritance can become marital property: community property or commingling property rules. Here is how each works.
1. Community and Separate Property in a Marriage
The concepts of community property and separate property are central to understanding how inheritances will get handled in marriage. Community property is jointly owned by both spouses and is subject to equitable division in the event of a divorce. Separate property is owned by one spouse and will not be divided during divorce proceedings.
Any income or assets earned or acquired during a marriage generally are considered community property to which both spouses have equal rights. Inheritances, however, are a special case. It’s possible to maintain the separate ownership of an inheritance, including one received before or after the marriage begins, as long as the inheritance is not commingled with marital property.
Commingled funds or assets are jointly owned by both partners. When assets or funds are commingled, they are available for both partners to use, are used to pay expenses incurred by the couple or the non-inheriting partner, or include contributions from both partners.
For example, if a cash inheritance is deposited into a couple’s joint checking and both partners deposit funds and write checks on the account, the inherited funds have gotten commingled. Then the inheritance is not separate but jointly owned and will be divided during divorce.
However, if the cash inheritance is deposited into a separate account that only one spouse can access, it is still separately owned and not subject to division. The inheriting partner also may not use inherited funds to pay for joint expenses if the intent is to keep the funds separate.
In the case of inherited property such as a house, avoiding commingling has additional wrinkles. For example, if both spouses live in the house, it will be considered joint marital property.
To keep a home separate, the inheriting spouse would also have to avoid spending any joint funds on repairs and upkeep. If it’s used as a rental property for income, the rental income would be kept separate from other income received by the pair or the inheritance might be considered joint property.
The intent is important when a divorce court is considering whether an inheritance is a joint or separate property. A spouse who wants to keep an inheritance separate will retain documents, such as account statements, showing how inheritance funds were spent, that will demonstrate the intent was to keep the funds separate.Sometimes documentation may take the form of personal communications.
For instance, if the spouse of someone who inherited a house personally performed needed repairs on the house, this injection of sweat equity could cause the house to be considered joint property. However, if the inheriting spouse could document that repairs were performed only over his or her objections, that could let the house remain individual property.
An inheritance may become jointly owned through a process called transmutation. A transmutation agreement is a post-nuptial agreement, and the effect can occur gradually, so that at one point inherited property is entirely separate, then partly joint and then entirely joint.
If separately owned inherited property is accidentally commingled and becomes jointly owned marital property, it may be possible to reverse the commingling. It will require presenting the court with evidence that commingling was in error and that the intent all along was to keep the property separate.
How Prenups and Postnups Affect Inheritances in a Marriage
One way to document the intent to keep an inheritance separate is to have both partners sign a pre-nuptial or post-nuptial agreement. These legal documents can be drafted before or after a marriage begins and detail exactly how marital property, including property owned when the marriage begins, as well as inheritances received later, will be divided.
The Bottom Line
Unlike most property received by partners in a marriage during the union, an inheritance can be kept separate and not regarded as jointly owned marital property. However, several actions need to be taken for that to happen, including keeping the inherited property apart from marital property and not expended for the benefit of the other partner or the joint needs of the marriage. Because this is governed by varying state laws, only an attorney who has experience with the laws of a given state can give definitive advice on inheritance during the marriage.
If you anticipate receiving an inheritance during a marriage and want to maintain it as separate property, consider working with a financial advisor.Finding a financial advisor doesn’t have to be hard. SmartAsset’s free toolmatches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Protecting your retirement savings after a divorce may not be at the top of your mind when you are going through the process of splitting up with your spouse. Still, your financial well-being matters, and that includes making sure that your retirement savings are protected.
Generally, inheritances are considered separate property and are not subject to division in a divorce. However, there are circ*mstances where an inheritance could potentially be divided: Commingling of Assets: If you have commingled your inheritance with marital assets, it may lose its separate property status.
Is an Inheritance Separate or Marital Property? In most states, an inheritance is considered separate property, whether you receive an inheritance before, during or after your marriage. Your spouse is not entitled to use or spend your separate property.
As long as you keep your inheritance as legally separate property, you won't ever be required to share it with your spouse, even if you end up divorcing.
Assets inherited by one partner in a marriage can be considered separate and owned only by that partner. However, inheritances can be ruled as marital property jointly owned by both partners and, therefore, subject to division along more or less equal lines in the event of a divorce.
If a spouse inherited an IRA, it is not considered marital property unless the spouse who inherited it commingles the asset with marital assets. Commingling occurs when an asset belonging to one spouse is shared with the other spouse, typically by transferring all or part of the asset to a joint account.
Can an ex-spouse claim inheritance? In theory, yes, but there are ways to prevent a former spouse from receiving inheritance money, or otherwise allowing one of the parties to protect family wealth after a divorce.
Most states exempt a spouse from the tax when they inherit property from another spouse. Children and other dependents may qualify for the same exemption, though in some cases, only a portion of the inherited property may qualify.
In most cases, a person who receives an inheritance is under no obligations to share it with his or her spouse. However, there are some instances in which the inheritance must be shared. Primarily, the inheritance must be kept separate from the couple's shared bank accounts.
By law, inheritances aren't marital property; instead it's property that goes to a sole individual. There are some exceptions that you should know about, though.
Inheritance theft can also occur after death if someone takes a physical item that is left to you in the will or if the executor misappropriates the deceased person's assets. Whatever your situation, it is crucial to work with a probate litigation lawyer throughout the process.
Prenuptial and Postnuptial Agreements are the strongest way to protect your separate property from your spouse. Your separate estate and any potential inheritance, or gift, can be clearly defined in an agreement along with rights and responsibilities of both spouses in the event of a divorce.
In most cases, inheritance is considered separate property rather than community property. This means that any inheritance you receive while married will not be subject to division if the marriage ends in divorce.
If neither community property nor the right of election applies, a surviving spouse may be disinherited completely. They can choose to contest the validity of the will itself, but otherwise they have no recourse.
Depending on where the divorce paperwork is filed, an inheritance may be treated as separate or as marital property subject to division. Some states follow equitable distribution principles, meaning marital assets and liabilities are divided fairly—though not equally—between spouses during a divorce.
A divorce does not end financial commitments as husband or wife, which makes it possible for former spouses to claim against their ex in the future. This is of course unless a prenuptial agreement was signed before entering into the marriage or a postnuptial agreement was signed during the marriage.
Your beneficiaries (the people who inherit your estate) do not normally pay tax on things they inherit. They may have related taxes to pay, for example if they get rental income from a house left to them in a will.
Some beneficiaries of IRA accounts whose owners died in 2020 or later are exempted from the 10-year rule. This exemption applies to "eligible designated beneficiaries," who can be: A surviving spouse. A disabled or chronically ill person.
Separations – Although you and your spouse may be separated, until you are legally divorced, your spouse must still be the beneficiary of your account. Divorce – Upon divorce, you must change the beneficiary listed on your account.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
In 2024, the first $13,610,000 of an estate is exempt from taxes, up from $12,920,000 in 2023. Estate taxes are based on the size of the estate. It's a progressive tax, just like our federal income tax. That means that the larger the estate, the higher the tax rate it is subject to.
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income. Example: You inherit and deposit cash that earns interest income. Include only the interest earned in your gross income, not the inherited cash.
Inheritance refers to the assets that an individual bequeaths to their loved ones after they pass away. An inheritance may contain cash, investments such as stocks or bonds, and other assets such as jewelry, automobiles, art, antiques, and real estate.
The court will not consider an inheritance until the party in question has actually passed away and the affected spouse has received their assets. People often try to sway the outcome of a family law case by referring to an inheritance that either party will receive at some point in the future.
Marital property is generally any asset or debt accumulated by the couple during the marriage. Paychecks earned during the marriage are an example of marital property, as are most debts incurred in marriage. Marital property may also include real estate, businesses, investments, employment benefits, and other assets.
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