Understanding the effects of inheritance and divorce
Although it might seem like an inheritance you received before or during your marriage should remain yours after divorce, this isn't necessarily the case. Several factors affect cases involving inheritance and divorce:
Community property vs. separate property
When it comes to divorce and the splitting of assets, courts recognize two types of property: community and separate. Community property includes money, goods and property accumulated during the marriage. In most states, it's covered under the Equitable Distribution Law, meaning your spouse is entitled to a share (but note that an equitable share does not necessarily mean an equal one).
Separate property, on the other hand, is property obtained and owned by an individual prior to the marriage or a legal separation—and it's generally exempt from the Equitable Distribution Law. Separate property is also property you acquired during the marriage but that you kept entirely separate from your spouse. For example, your dad left you the title to a vintage car that now sits idle in your mom’s garage.
Is an inheritance community or separate property?
That depends upon how the inheritance was used. Even in community property states such as California, Wisconsin, New Mexico, and Arizona, an inheritance is technically seen as separate property. There’s a catch, though: If the inheritance was mixed with marital assets (what the law technically refers to as "co-mingling") then most states will consider the inheritance communal property—and thus up for dividing upon divorce.
Here are some examples:
Let’s say you bought a car or a house with your inheritance money. If both you and your spouse are on the title or deed—even if that person never paid a dime for a payment or upkeep—then that property is now considered communal.
If you used the inheritance money to pay for, say, a house but your spouse is not on the deed, he or she may still be able to lay a claim to the home if he/she helped make mortgage payments or contributed to the upkeep of the home.
Even though you received your inheritance money before you were ever married, your spouse may still get a portion of it if you used the money jointly—for example, it was placed in a joint checking account you both deposited to and withdrew from regularly. Ditto if you took funds you both helped accumulate (i.e., "marital assets") and put them into the account, such as money market, where your inheritance sits. Because it’s hard to legally decipher who had what, the court will view it as communal property.
Protecting an inheritance during divorce
If you've commingled an inheritance with your marital assets, there’s little you can do to reclaim it for yourself.
If, however, a divorce is something you’re pondering and you know you are set to inherit some money or property, be especially careful about keeping the funds and/or ownership entirely separate. Even depositing an inheritance check into a joint account until you have time to open a new and separate account can give your spouse some legal claim to the money.
Your best course of action: Once you are cut a check (made payable only to you), seek legal advice about where and how to deposit it. If you inherit a home or some other property, make sure the title is in your name only and, again, get legal counsel.
Once you’re divorced, what happens to an inheritance?
Inheritances received after your divorce (or even when you are legally separated) are your own property, and your ex has no legal right to them.
But as with many things involving the legal system, things aren't always cut and dry. For example, if your ex never contributed to a retirement fund because he or she was planning on an inheritance you were to receive, the legal system may find that you owe your spouse at least a portion of the inheritance.
If you ever get remarried and want to protect a future inheritance, a prenuptial agreement can be a great way to ensure your future finances and/or property is protected.