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Understanding Inheritance: Separate or Marital Property?

An inheritance can provide a sudden and significant gift of money, property, or other assets. It can also present a dilemma. If you receive an inheritance, do you have to share it with your spouse? Although laws can vary by state, broadly speaking, you don’t. But if you think you’d like to keep an inheritance all to yourself, you may want to understand the legalities, logistics, and emotional consequences first.

Is an Inheritance Separate or Marital Property?

In most states, an inheritance is considered separate property, whether you receive it before, during, or after your marriage. Your spouse is not entitled to use or spend your separate property. And in a divorce, separate property is typically not divided between spouses; it remains the sole property of the individual who owns it.

By contrast, marital property belongs to both spouses, often by joint ownership or community property. It might include money you make during the course of your marriage, property you acquire and own jointly, or other assets you’ve purchased or saved together. Although state laws differ on how marital property is divided, as a rule, marital property belongs to both parties and is split (one way or another) between spouses if they divorce.

How Can You Keep Your Inheritance Separate?

Inherited funds are considered separate property when they’re held in a separate account in your name only. To ensure that your inheritance remains separate, it can’t be commingled with your marital assets.

If you receive an inheritance check and deposit it into your joint checking account—even if you intend to transfer the money into a separate account later—you may accidentally “transmute” your funds into joint property.

Get Advice Early

Because accidentally mixing your inheritance with joint funds can happen easily, you may want to seek advice from an attorney or financial advisor if maintaining separate finances is important to you. A professional can advise you on how to open and maintain your own account or trust and can point out any pitfalls to avoid based on laws in your state.

Keeping your inheritance separate may be especially critical if you think you may be heading toward divorce, or if you want to use an 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’s a handful of common ways it can happen:

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

An inheritance you receive after a divorce may be subject to a different kind of sharing: You may be required to adjust child or spousal support if you are found to have additional means to pay. This scenario is most likely to occur 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?

You may be entitled to keep an inheritance separate from your spouse, but 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.

You may still want 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, think about the emotional weight of sharing (or declining to share) an inheritance with your spouse and family. If you’re able to do it, sharing your inheritance creates generational wealth, helping you 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 you want 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.

For any mortgage-related needs, feel free to call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.

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