Inheritance and Divorce
While watching the news and seeing all the investment banks going bankrupt or losing billions of dollars in value, my mind turned to my business and how people were going to react when they saw their potential nest eggs shrink in the wake of the deepening financial crisis.
In divorce, the equitable division of assets is often rife with emotional issues. So let’s take a deep breath and think about a potential asset that you can protect and is almost litigation-proof: your inheritance.
But, like anything else of a financial nature, forethought and planning are essential. One misstep, and that which on the surface would appear to be your separate property, clear and simple, instead reverts into a muddled mass of marital property that could cause untold headaches when separating assets.
If your parent were to leave you an inheritance, you would do best to take that money and place it in a separate account apart from your joint funds. Under the law, that money belongs solely to you and in divorce will be considered your separate property.
But if you decide to place the money in a joint account (so-called “comingling”), or use some or all of it to remodel your house, or to go on a family vacation (so-called “transmutation”), for example, it becomes problematic whether or not that money would revert to you if you end up divorcing your spouse.
Another thing to think about is whether both parties paid taxes on that inheritance. If that is the case, the spouse who did not receive the inheritance might be entitled to a credit for a portion of the taxes paid. That is a question to ask your lawyer.
Rather than have to deal with this issue, the best thing to do would be to keep any inheritance separate and apart from marital assets from the beginning. There are enough issues to deal with in divorce. This needn’t be one of them.
