Inheritances Under Property Division Law
When spouses divorce, determining how to divide property can become a multi-layered issue that often depends on how each asset was acquired. Although assets and income obtained during the marriage are typically subject to division, inheritances received by one spouse may be treated differently under state law.
Inheritances as Separate Property
The general rule is that assets and income acquired during the marriage are treated as marital or community property. However, an inheritance is often an exception. Many states consider inheritances to be separate property, provided that the recipient of the inheritance maintains clear separation of the inherited funds or assets from marital accounts and uses. If a spouse inherits money or property and keeps it distinct from joint finances, the inheritance is more likely to be treated as separate property. The specific treatment can differ among states, though, and some jurisdictions take a broader view of what constitutes marital property, particularly if an inheritance is used for the benefit of the marriage.
Commingling
An inheritance can lose its separate character and become marital property through commingling. Commingling occurs when inherited funds or assets are mixed with marital property to the point where their original source is no longer distinguishable. Depositing inherited money into a joint account used for mortgage payments, household expenses, or family travel can create a gray area, making it difficult to demonstrate that the inheritance should remain separate. Likewise, mixing marital funds into an account that contains inherited money can diminish the inheritance’s separate status.
Proving an Inheritance Is Separate
Courts generally require evidence that an asset has been maintained as separate property. Records showing the date the inheritance was received, how it was held, and whether it was ever combined with marital finances can become critical in divorce proceedings. Detailed bank statements, investment account records, and similar documentation can help trace the origin of the inheritance and prove that it was neither mixed with marital property nor used for marital purposes. Spouses often strengthen a claim of separate status by keeping inherited funds in an account held in the inheriting spouse’s name only and avoiding use of that money for marital expenditures.
Appreciation in Value of Inherited Assets
In some states, an inherited asset remains separate, but if there is an increase in its value due to the efforts of either spouse, the appreciation may be subject to division. An example might involve an inherited rental property that produced greater rental income or significantly increased in value because one or both spouses actively managed or improved it. The original asset may be treated as separate property, while the portion of the increased value attributable to marital effort may be characterized as marital property.
Future Disbursements
Some inheritances involve a trust, annuity, or other structure that distributes funds or assets in increments rather than all at once. A spouse may receive distributions periodically or become entitled to additional portions of the inheritance in the future. Whether these amounts are deemed separate or marital property can turn on how the distributions are used, whether they become mingled with marital funds, and the timing in relation to the marriage or divorce proceeding. In certain cases, courts may view each incremental disbursement as having its own status, particularly if those payments continue after a formal date of separation. If substantial marital effort affects the value of the trust or other source of the future disbursements, the amount attributable to that effort may be subject to division.
