How Will a Divorce Affect my Inheritance?
In your divorce, your marital estate will be subject to equitable distribution. Marital assets are divided according to a set of factors that help the court determine the most appropriate way to split them among two members of a divorcing couple, such as each asset’s tax burden and each partner’s income and future employment prospects.
Only marital assets are subject to division in a divorce. Typically, assets obtained through inheritance, such as real estate, savings accounts, investments, and various assets held in trusts, are separate property and thus, not subject to distribution in a divorce. But when these assets are moved to accounts that benefit both parties or change in value because of a spouse’s efforts, they can become subject to division.
Separate, Marital, and Commingled Assets
There are three types of asset that come up in discussions about property division in a divorce:
- Separate assets. These are the assets an individual holds alone, such as those he or she owned prior to entering the marriage, those that only bear his or her name on the title, and those designated as separate assets in a prenuptial agreement;
- Marital assets. These are the assets the couple obtains during their marriage. Marital assets are both partners’ property and can include income earned from their jobs, investments made together, real estate the couple owns, and joint financial accounts; and
- Commingled assets. When a separate asset becomes a marital asset, it is known as a commingled asset. Commingled assets can include money moved from separate to joint accounts, real estate that appreciates in value due to renovations performed or funded by a spouse, and investments that grow in value after being initially funded with separately held money.
Gifts and inheritance are typically the only separate assets an individual can obtain during his or her marriage, but even these can become marital assets if they are commingled. In a case like this, a divorce means dividing your inheritance with your former spouse.
How Careful Planning can Change How Divorce Affects your Inheritance
Although married couples typically do not plan to get divorced, inheritance recipients can include divorce contingencies in their estate planning to ensure that most or all of their inheritance remains with them in the event of a divorce.
One way to do this is to keep your inheritance separate from all other assets. This means keeping in its own, separate account, rather than commingling it. An additional layer of protection can be a stipulation in a prenuptial or postnuptial agreement that states that the inherited assets are to remain separate.
Work with an Experienced Denver Divorce Attorney
It is smart to ask questions about your financial future before you file for divorce. The right parties to ask are your financial advisor, your accountant, and your divorce attorney. To get the conversation started with a member of Nicholas Family Law, contact our office to schedule your initial consultation with us.