Understanding Inheritance: Separate or Marital Property?

An inheritance can be a significant and sudden gift, bringing with it money, property, or other valuable assets. However, it can also present a dilemma: Do you need to share your inheritance with your spouse? While laws can vary by state, the general rule is that you don’t have to. But before deciding to keep an inheritance all to yourself, it’s essential to understand the legalities, logistics, and emotional consequences involved.

Is an Inheritance Separate or Marital Property?

In most states, an inheritance is considered separate property, regardless of whether you receive it before, during, or after your marriage. This means your spouse is not entitled to use or spend your separate property. In the event of a divorce, separate property typically remains with the individual who owns it.

On the other hand, marital property belongs to both spouses, often through joint ownership or community property. This can include money earned during the marriage, jointly acquired property, or other assets purchased or saved together. Although state laws differ on how marital property is divided, it generally belongs to both parties and is split between spouses if they divorce.

How Can You Keep Your Inheritance Separate?

To ensure that your inheritance remains separate, it must be held in a separate account in your name only. Commingling your inheritance with marital assets can inadvertently turn it into joint property. For example, depositing an inheritance check into a joint checking account, even temporarily, can “transmute” your funds into joint property.

Get Advice Early

Accidentally mixing your inheritance with joint funds can happen easily. Therefore, seeking advice from an attorney or financial advisor is crucial if maintaining separate finances is important to you. A professional can guide you on how to open and maintain your own account or trust and point out any pitfalls to avoid based on your state’s laws.

Keeping your inheritance separate may be especially critical if you anticipate a divorce or if you want to use the inheritance as a lifeline to escape domestic violence or financial abuse.

How Does an Inheritance Become Marital Property?

Generally, an inheritance becomes marital property when you transfer ownership to a jointly held asset. Here are some common ways this can happen:

• Depositing funds into a joint account
• Paying off a joint mortgage or other debt
• Purchasing a jointly held home or other property

If you receive an inheritance after a divorce, you may need to adjust child or spousal support if you are found to have additional means to pay. This scenario is most likely if you are currently paying less than the recommended level of support due to inadequate income.

Consider a Prenuptial or Postnuptial Agreement

If you’re determined to keep your inheritance separate from marital assets, a prenuptial or postnuptial agreement can help proactively spell out your intentions. Drawing one up also offers an opportunity to discuss expectations with your spouse and develop a roadmap for holding assets separately when you actually receive an inheritance.

What’s the Best Way to Share an Inheritance With Your Spouse?

While you may be entitled to keep an inheritance separate from your spouse, you aren’t required to do so. You can use inherited funds to upgrade your family home, travel, pay off shared debt, or add to your family investment portfolio. If you aren’t concerned about dividing assets in a divorce and you like the idea of using your inheritance for the benefit of your family, go for it.

However, it’s still a good idea to talk with your spouse about your plans and expectations—and theirs. If you share an inheritance with your spouse, are you hoping they’ll do the same when they inherit money or assets? Is there something specific you’d like to do with the funds—buy a boat, take a trip, or remodel the kitchen? Would you like to keep some of your inheritance money aside for your own use? How does your spouse envision using the money? Having these conversations early can avoid awkwardness and hurt feelings down the road.

The Bottom Line

Beyond the legalities, consider the emotional weight of sharing (or declining to share) an inheritance with your spouse and family. Sharing your inheritance can create generational wealth, helping to improve your family’s financial status and build lifelong memories together.

Only you know whether sharing or separating your inheritance is the best course of action. If you decide to keep your inheritance separate—or would like more advice about which course to take—consider working with an objective financial advisor or attorney who can walk you through your options and explain in detail how to meet your goals.

At O1ne Mortgage, we understand the complexities of managing your finances, including inheritance matters. If you need expert advice or assistance with any mortgage services, don’t hesitate to call us at 213-732-3074. Our team is here to help you navigate your financial journey with confidence and ease.