Community Property Vs. Equitable Distribution
When dealing with the division of property during a divorce, each state has chosen one of two methods. In states with the community property method, most assets acquired during the marriage are considered common property and each spouse gets half. In states that use equitable division, most assets and earnings acquired during the marriage are divided “fairly,” or based on how much of the total property each person earned during the marriage. In both methods, property that one party inherits is generally not included in the marital estate that is divided between the spouses.
Regardless of whether your state uses community property theory or the equitable division standard, property that you gain from an inheritance can be included in the marital estate if you comingle with it with other assets that you share with your spouse. For example, say you inherited $100,000. If you deposited those funds into your joint bank account, you would have “comingled” your money with your wife's money, and the $100,000 is now included in the marital estate. Another example of comingling is if you inherited land and then put the property under both your and your spouse’s name. Inherited property will also be considered “comingled” if both spouses invest in the asset or if the value of the asset grows during the marriage.
Burden of Proof
Both community property and equitable division courts presume that property acquired during the marriage is part of the marital estate. If you wish to exclude property you inherited from the marital estate, you must prove it by going through a process known as tracing. Through this process, you must show where the asset originated from and demonstrate that you had no intent to transfer ownership to your spouse.
Protecting Your Inheritance
Protecting your inheritance from being included in the marital estate requires gathering evidence for the tracing process. The first part of this process is to ensure the property never comingles with your spouse’s. All financial inheritances, such as cash and stock, should be kept in a separate account under your name only. Inherited real estate should have only your name on the deed. Also, retain a copy of the will to show how you obtained the assets and that it was given to you alone.