Inheritance and divorce
Frequently, in the context of a separation or divorce, one of the parties raises concerns about the other’s ability to make claims regarding their received or prospective inheritances.
Many believe that inheritances should be protected in the event of a divorce for the beneficiary, but the law is not so clear-cut. There are, however, measures that can be taken to reduce the likelihood of inherited assets being “invaded” in the event of a divorce.
In this article, we will examine the law and what you can do to protect your inheritance from divorce.
Differentiating between marital and non-marital assets
Assets amassed during the marriage through the couples’ combined labour are presumed by law to be “matrimonial property” and, under the sharing principle, should be split down the middle.
One spouse’s inheritance is not normally regarded matrimonial property and should not be subject to distribution unless other circumstances apply. The court makes a distinction between marital property and separate property. Case law recognises that one spouse should be allowed to keep non-matrimonial property that was brought into the marriage by either spouse before, during, or after the marriage, provided the other spouse’s financial needs can be addressed without using the property.
The situation becomes more intricate at this point. The demands of the parties may outweigh the fact that an inheritance is not deemed marital property and so is not subject to the sharing principle. Even if the inheriting party is allowed to keep the inheritance, the other spouse may be entitled to a larger share of the matrimonial estate to provide for their own needs.
The parties’ handling of their finances, the passage of time since the inheritance was received, and the use made of the money all play a role in determining whether the inheritance remains non-marital or becomes matrimonial in nature. During a marriage, separate property has a greater chance of becoming “mingled” with spousal property, changing its character and making it subject to equitable distribution. For instance, something may be considered community property if it was used to purchase, improve, or maintain the marital residence.
There is a difference between actual inheritances and expected inheritances. A person who has received an inheritance already has access to that resource. However, the court should be mindful that prospective heirs can alter their will at any time, so disputes over such assets shouldn’t be taken too seriously unless they are both impending and assured.
How to protect your inheritance from divorce
The best ways to protect your inheritance from divorce are:
- To keep inheritances separate from marital assets. Do not use such assets for the mutual advantage of both parties, nor do you invest them in joint property (or even a property in your own name if it would be the matrimonial property in which you will live).
- Maintain meticulous records that prove the source of the cash and that they have not been jumbled with the shared assets. This is especially advantageous if an inheritance was received many years before the divorce.
- Execute comprehensive estate planning to add layers of protection and let your expert advisors know you want to preserve your inheritance from the possibility of divorce. Otherwise, estate and/or tax preparation may entail transferring assets or putting them in joint names.
- Seek legal counsel on your specific situation. A family lawyer can advise you on the likelihood of your inheritance being exposed. For example, if the inheritance is a significant portion of the assets in a certain situation, it may be considerably more difficult to safeguard, and cautious methods may be required.
- Set up a pre- or post-nuptial agreement. This is the best option for protecting inheritance from divorce because you can determine what assets are matrimonial and non-matrimonial, what should be shared or retained in the event of divorce, and, provided this is properly executed with various conditions met, all parties should expect to be held to the terms of that agreement.
