A bitter divorce can leave you skeptical regarding financial matters heading into a second marriage. If you have, or intend to receive, a substantial inheritance, most states allow you to keep it, if you divorce. Exceptions to this general rule exist, however, and knowing how to separate your assets will help shield your inheritance from claims by your second wife.
During a divorce, a court will divide a couple's assets either equally or on the basis of fairness, depending on the state. Only property considered marital property is subject to division. Generally, most property acquired during the marriage falls under the category of marital property. When dividing property during a divorce, most states exclude inheritance given to one spouse, however. So, regardless of when you received the inheritance, inherited property is typically considered "separate," and is not subject to division.
Commingling of Property
Sometimes, assets that would otherwise be considered separate property can be transformed into marital property. One way this happens is by commingling. Commingling occurs when marital property is mixed with separate property to the point where the source of the assets cannot be traced. An example would be if you deposited your inheritance money into a joint-checking account that you and your spouse both used during the marriage.
Transmutation of Property
Another way that your inheritance can become marital property is through transmutation. Transmutation occurs when you treat separate property as if it were marital property, accompanied by some facts that demonstrate your intent to change the classification of the asset. An example might be if your inheritance included a boat and you subsequently retitled the asset in the name of your spouse, who also regularly used it.
To avoid the possibility of transmutation of property and to reduce uncertainty in divorce, most states allow you to enter into prenuptial (before marriage) or postnuptial (after marriage) agreements that specifically address inheritance. Provided that you and your spouse meet the formalities, these agreements become enforceable contracts, and the terms will control how property is divided during a divorce. An example might be a prenuptial agreement that keeps your real estate inheritance separate, regardless of how it is used during the marriage and regardless of which spouse actually holds the title.