Whether you’re on the receiving end or the giving end of an inheritance, divorce can throw a monkey wrench into your plans for the money. Estate laws and family laws often overlap, but in most cases, you can supersede both with careful planning and common sense. For ultimate protection, speak with an attorney to make sure you have all your bases covered.
In most states, if you die mid-divorce, your spouse will inherit a portion of what you’ve acquired through your lifetime. Even if you’ve written her out of your will because your divorce is pending, you can’t disinherit her. If your divorce isn’t final yet, she’s still your spouse, so she can “take against” your will, or elect to receive a share of your estate rather than accept the terms of it. If she is in your will, and you forget to remove her after your divorce, she can’t inherit, no matter what your will says. When your divorce is final, it invalidates all portions of your will relating to her. The exception is if you specially mention in your will that you want her to inherit anyway, regardless of the divorce.
Inheritance as Marital Property
If you receive an inheritance while you’re married, it’s yours. If you later divorce, your inheritance remains your separate property, and the court won’t order you to give a portion of it to your spouse as long as you take some sensible precautions. One safeguard might be to speak with an attorney to draw up a postnuptial agreement stating that your spouse has no interest in your inheritance in the event of a divorce and have her sign it. The law protects you even without such an agreement, but it’s easy to make mistakes that can turn your separate property into marital property, losing its immunity from distribution in a divorce. A post-nuptial agreement might give you an added layer of protection.
Commingling Your Inheritance
Without a postnuptial agreement, if you do anything with your inheritance that might make it appear to a court that you intended to share it with your spouse, the law usually treats it as marital property. For example, if your father leaves you $250,000, and you promptly deposit the check in a joint marital account, you’ll probably lose $125,000 of it to your spouse if you divorce. This is “commingling,” tainting your asset by placing it in any sort of joint ownership. You can protect your inheritance by always keeping it in a separate account in your own name.
Bequests to Adult Children
When you leave your married child an inheritance in your will, you can either trust her to protect it as her separate property, or you can do it for her. Estate laws allow you to transfer your bequest to her through a trust rather than a last will and testament. If you make it a beneficiary-controlled trust, it won’t pay a lump sum out to her at your death. Her bequest can remain safely in the trust, with an independent trustee to manage and make distributions to her during her lifetime, as needed. If the trust continues to own the assets, there’s less chance of them becoming commingled with her marital assets. She can retain control over a beneficiary-controlled trust, even changing the trustee if she chooses to. If you think this might benefit your situation, consult with an estate-planning attorney to work out the details.