What Happens to Inherited Assets in a Divorce?
Money can be a major stress point in a divorce, especially when it involves funds and assets that have been inherited.
It makes sense. Perhaps your parents, grandparents or other loved ones left you a sizeable inheritance. If you are contemplating or going through a divorce, you may ask, “My spouse can’t get their hands on any of it, can they?”
I must give the lawyerly answer here: “It depends.” Though it is a frequently asked question, the answer is not always simple because it depends on the specific facts and circumstances in each individual case.
The good news: In Georgia, the general rule is that if you’ve always kept the inheritance separate from the marital estate, your inheritance likely will be viewed as your separate property that is not subject to equitable division in a divorce.
Spouses often comingle their inherited assets with marital assets for a variety of reasons. It is important to know that doing so might mean that the comingled inherited assets might convert into marital property that is subject to equitable division in a divorce. For example, if you use inherited funds to purchase a house that you and your spouse jointly own or deposit your inherited funds into a joint account with your spouse, in the event of divorce, the court might view those funds as marital property.
Here are some important things to know about how best to protect your inheritances in a marriage—and what could happen with them should you face a divorce.
The Easy Part
Generally, in Georgia, if you inherit the assets before you get married and don’t comingle them after the wedding, they likely will remain yours in the event of divorce. Enjoy.
Similarly, if you inherit money while you are married, and you keep the money in a separate account that does not contain any other marital funds, it is likely to remain your separate property in a divorce.
It is important to keep records in the event you need to prove that these funds were never comingled with marital property, such as depositing marital funds into the same account as the inherited funds or to buy marital assets. Depending on the length of time, banks and financial institutions may not be able to provide statements or complete records for the length of the marriage, so the records you maintain may be crucial.
If you expect to receive an inheritance at some point after you marry, you may want to consider entering into a prenuptial agreement to protect your inheritance. Or, if you receive an inheritance after the wedding, you can enter into a postnuptial agreement with your spouse to clarify how your inheritance will be addressed in the event of divorce.
The Complicated Parts
Many spouses share their money, even inherited funds. As we discussed above, your inheritance might be considered marital property if it is comingled with marital property. For example, if the money goes into an account held jointly with your spouse, or you use it to purchase jointly owned property, a court may determine that the inheritance has been converted into marital property.
Real estate can be tricky, particularly if the property appreciates in value during the marriage as a result of your spouse’s efforts. For example, if you inherited a house, but you and your spouse spend marital money or time improving the property to increase its value, the judge might consider the appreciation in value to be marital.
On the other hand, if you and your spouse never do anything with your inherited property, or you do it only with your separate, non-marital money, the property and any passive appreciation in value is more likely to be considered your separate property.
Let’s say Spouse A owns a house prior to getting married to Spouse B, and the couple lives together in the home during the marriage, but the house remains titled in Spouse A’s name only. When the couple decides to divorce, the value has increased significantly due to market conditions, and not as the result of Spouse B’s efforts or contributions. The house’s increase in value may be considered passive appreciation, and the court may be less likely to determine that the house is subject to equitable division.
An inherited family business also can be complicated. Though the general rule that inherited property is not subject to equitable division applies to a business that is passed down to a party, there may be exceptions to consider. Depending on the specific facts and circumstances, appreciation in value of business assets during the marriage or the spouse’s contributions to the business might entitle the spouse to a share of the increased value.
Finally, here is some good news for art lovers: If you inherit a painting or statue, it most likely will remain your separate property in the event of divorce.
Caitlyn Kerr has practiced law since 2014 and handles high-net-worth divorces and other matters at Boyd Collar Nolen Tuggle & Roddenbery.