How Can I Shelter Inheritance From a Marriage?

by Beverly Bird

Statutory laws protect inheritances in all states. This means that if you receive an inheritance, the law declares that your spouse has no right to it during or after your marriage. However, it is very easy to undo this protection if you don’t handle the inheritance properly. The statutes don’t say that your spouse has no right to your inheritance under any circumstances whatsoever. However, your inheritance is your sole and separate property as long as you take steps to segregate it from marital assets.

Commingling

When you commingle your inheritance with marital assets, you cease to shelter it. Commingling means you’ve put it together with marital money or property. If your inheritance is cash and you deposit it into an account held in joint names with your spouse, you’ve commingled it. In community property states where courts divide all marital property 50/50 in a divorce, your spouse is now entitled to half your inheritance. In equitable distribution states, where judges have the right to distribute property in a way they think is fair, your spouse will now receive a portion of your inheritance. Exactly how much would depend on how much a judge feels it is fair to give him.

Non-Monetary Contributions

Your spouse’s non-monetary contributions to your inherited asset can leave it unprotected in the event of a divorce as well. For example, if you inherit property but it’s in very bad repair, you might want to fix it up for your own use or to improve its condition so you can sell it. If your spouse takes his tools to the property every weekend and does the work himself, your property is no longer sheltered. He now has “sweat equity,” which courts will often recognize. To retain the property's immunity from consideration as marital property, you would either have to perform the labor yourself or pay someone else to do it. However, you can’t pay someone else to do the work from marital money.

Transmutation

Transmutation is similar to commingling. However, it takes place gradually. When you commingle an inheritance, it’s like jumping into a swimming pool; you do it all at once. Transmutation is like stepping down a ladder into the water. When you’re married, any income you earn is marital property. If you use your income to repair the property you inherited, you begin to erode its immunity. Each time you pay a laborer from marital funds, your inherited property becomes a little more marital and less separate. If you take out a home equity loan to pay for the repairs, then use your income to make the monthly payments, you’re transmuting your property from a separate inherited asset into marital community property.

Defenses

In a divorce dispute over whether an inheritance is your separate property or if it’s become marital property, you would have the burden of proof to convince the court that you intended it to be separate, despite any mistakes you might have made in handling it. If your spouse insisted on performing work on your property even though you asked him not to, this might be a defense because you did not intend to share your inheritance by agreeing that he should perform the labor. If you commingle cash in a joint account, but set up the account so that withdrawals require both your signatures, some courts might also consider this a defense. You’ve taken steps to protect your inheritance by preventing your spouse from being able to dip into the money of his own free will, whenever he likes.