Can I Protect My Inheritance from Divorce?
Inherited assets are typically considered separate property rather than marital property, meaning they may not be subject to division in a divorce. However, proactive planning can strengthen this protection.
The Risk of Commingling
The most critical step is maintaining separate property status. If you deposit a spouse’s paycheck into an account containing your inheritance – even accidentally – you risk commingling the funds. While a forensic accountant might theoretically separate the amounts, courts may not agree. A single commingling incident could potentially result in losing half your inheritance during divorce proceedings.
Documentation and Record-Keeping
Document the source of wealth immediately upon receiving an inheritance. Carefully identify and safeguard evidence of the transfer, such as deeds for real estate gifts or wire transfer documentation for securities. This information becomes crucial if disputes arise later.
Practical Protection Strategies
Maintain Separate Accounts
- Keep inherited property in a wholly separate account
- Consider using a different financial institution than your other accounts
- Avoid any mixing of funds
Use a Revocable Trust
Creating a revocable trust to own inherited property offers several advantages. The trust serves as a separate accounting entity while allowing you to maintain control as both grantor and trustee. You can make changes at any time while preserving the property’s separate status.
Important Considerations
- Create a separate trust specifically for inherited property – don’t repurpose an existing unfunded trust
- Include customized language in your Last Will reflecting the trust as separate from marital property
- For enhanced protection, consider a self-settled domestic asset protection trust (though a revocable trust may suffice)
Consulting with an estate planning attorney ensures proper implementation of these protective measures. If you or a loved one needs assistance, do not hesitate to contact The Stegall Law Firm.
