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Preserving an Inheritance as Separate Property in the Event of Divorce

When a couple prepares to marry, one question which may arise is whether they should enter into a prenuptial (or antenuptial) agreement, which among other things sets forth what happens to their assets in the event of a divorce. There are many situations in which this may be appropriate, including when there is a significant earning or wealth disparity, children from prior marriages, or concerns about certain assets or debts. However, in some cases, assets may be protected in divorce without the use of a prenuptial agreement. One such situation is where one spouse stands to inherit a significant sum of money (or receive it as a gift).

The general rule is that amounts “earned” during the marriage are subject to division and apportionment in the event of a divorce. However, if a spouse receiving funds takes proper steps upon inheriting or receiving a gift, it is possible to preserve these funds (as well as the income which they generate) as separate property which is not subject to apportionment in divorce.

To preserve an inheritance as separate property in the event of a divorce, it is essential that inherited funds be maintained in a separate, segregated account (rather than a joint account). This means the spouse of the recipient should not be a signer on the account, and marital assets (earnings, etc.) should not be deposited into that separate account. If assets are commingled with marital property by placement in a joint account, the presumption under the law is that the inherited funds are no longer the separate property and are converted to marital property. As marital property, they are subject to equitable distribution under divorce law. While the presumption can be rebutted, it is difficult to do. For example, the recipient spouse would have to prove that the commingled account was created for convenience purposes only.

In addition to maintaining funds in a separate account, best practice is not to use the inherited funds to pay for marital expenses, which makes them susceptible to an argument that they are intended to be marital funds. The money can be used to pay personal expenses.

A prenuptial or post-nuptial agreement after marriage is useful in establishing how the parties want to divide their assets in the event of divorce. However, at least in the case of inherited or gifted property, following these rules can help preserve them as separate property which will not be distributed in a divorce.

If you need guidance regarding how to protect assets, contact one of our experienced attorneys.

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