Whether a particular asset can be divided as part of a divorce settlement depends on how it is classified: separate property or marital property.  State laws governing property differ in details.  Generally speaking, separate property includes inheritance received by either spouse.  Yet the critical consideration is whether the inheritance – separate property has been comingled with marital assets.  If so, the inheritance will most likely be deemed marital property, and is now subject to division.   Therefore, set-up a plan through an estate planning professional to ensure inheritances are kept separate from marital property.

In addition, gifts to a spouse from a third party are typically considered separate property.  Like inheritances, spouses should exercise caution to avoid comingling gifts with marital property.  In some divorces, one spouse will claim money received was a gift and the other spouse will claim it was a loan.  To avoid contentious disputes, if you receive or make a gift, draw up paperwork memorializing the terms of the gift, and be sure to document the fact that there is no expectation of repayment.

See Gerry W. Beyer, Protecting Inheritances in Divorce, Wills, Trusts and Estates Prof Blog. August 20, 2014.

Posted by Chuba Abaelu,

Associate Editor, Wealth Strategies Journal