How to Protect Your Inheritance During a Divorce

An inheritance is generally treated as separate property rather than marital property, which can help protect it from division in a divorce. But that protection isn’t necessarily permanent. Mixing inherited money with marital funds, using it to purchase jointly owned property or changing how an inherited asset is titled can complicate its separate-property status. Because divorce and property laws vary by state, understanding how commingling and other actions can affect an inheritance can help you take steps to preserve it.

A financial advisor can help you consider how an inheritance fits into your broader financial and estate plan, while an attorney can advise you on how your state’s marital property laws may apply.

How Inheritances Are Handled in Divorce

Whether an inheritance is divided in a divorce depends on state law and on how the inherited property was handled during the marriage. In many states, an inheritance received by one spouse is generally treated as separate property rather than marital or community property. However, separate property can sometimes lose some or all of that protection through commingling, retitling or other actions.

Most states follow an equitable distribution system. In these states, courts divide marital property in a manner considered fair under state law, which does not necessarily mean a 50/50 split. Property acquired by inheritance is commonly treated as separate property, although some states permit separate property to be considered or divided in limited circumstances.

A smaller group of states follows a community property system. Community property generally includes assets acquired by either spouse during the marriage, while property received individually by inheritance is generally treated as separate property. Alaska allows couples to opt into a community-property arrangement.

Property System	General Treatment of Marital Property	General Treatment of an Inheritance
Equitable distribution	Marital property is divided fairly according to factors established by state law; the division is not necessarily equal	An inheritance received by one spouse is commonly treated as separate property, subject to state-specific exceptions
Community property	Community property acquired during marriage is generally treated as jointly owned and is typically divided according to state community-property rules	An inheritance received by one spouse is generally separate property unless its status changes under applicable state law
Alaska	Generally follows an equitable-distribution framework	Couples can elect community-property treatment for qualifying property

The nine traditional community-property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Because rules governing separate property, commingling and appreciation vary by jurisdiction, the classification of a specific inheritance may depend on the law of the state handling the divorce.

What Happens If You Deposit an Inheritance Into a Joint Account?

Depositing inherited money into a joint account can make it more difficult to preserve the inheritance as separate property. When inherited funds are mixed with marital money, such as wages or other jointly owned savings, the funds become commingled. Depending on state law and the circumstances, this can make some or all of the inheritance subject to division during a divorce.

However, putting an inheritance into a joint account does not necessarily mean that the entire inheritance automatically becomes marital property in every state. A court may consider whether the inherited funds can still be traced, how the account was used and whether the owner intended to make the inheritance joint property.

For example, suppose you inherit $100,000 and initially keep it in an account in your name. You later transfer that money into a joint account containing $25,000 of marital savings. Over the next several years, you and your spouse use the account for household bills, investments and other expenses. If you later divorce, determining which funds came from the inheritance may become significantly more difficult.

Keeping inherited funds in a separately titled account and retaining records showing where the money came from can help establish a clearer distinction between inherited and marital assets. Because tracing and commingling rules vary by state, consider speaking with a family law attorney before transferring a significant inheritance into a joint account.

Click Your State to Get Matched With Financial Advisors That Serve Your Area

Choose your state and answer some questions to get matched with up to three fiduciary advisors that serve your area.

When Commingling Can Affect an Inheritance in Divorce

A divorcing couple sits at opposite ends of sofa after having an argument.

An inheritance that begins as separate property can become more difficult to protect if it is commingled with marital property. Commingling occurs when separate assets are mixed with assets belonging to the marital estate, making it harder to distinguish which property belongs to which spouse. A common example is depositing inherited money into a joint bank account that also contains marital income or savings.

Commingling can also occur when inherited funds are used for jointly owned assets or marital expenses. For example, you might use inherited money for the down payment on a jointly titled home, to pay down a mortgage on marital property or to make significant improvements to property owned by both spouses. Depending on state law, these actions can affect whether the inherited funds remain separate, create a marital interest in the asset or require the inheritance to be traced during a divorce.

The ability to trace inherited property can therefore be important. Bank statements, estate documents, brokerage records, deeds and other records may help establish where inherited funds originated and how they were used. But tracing rules vary, and mixing funds over a long period can make the process more complicated.

Another issue is transmutation, which generally refers to separate property changing into marital or community property through the spouses’ actions or an agreement. For example, adding a spouse to the title of inherited real estate may be evidence that the owner intended to change how the property was owned. Whether an asset has been transmuted ultimately depends on applicable state law and the facts of the case.

For these reasons, someone who wants to preserve an inheritance as separate property may want to keep inherited assets separately titled, avoid mixing them with marital funds and maintain detailed documentation of all related transactions.

How to Protect Your Inheritance From Divorce

To protect an inheritance from a divorce, you can keep it in a separate account and avoid commingling it with marital assets, among other strategies. Here’s a closer look at five common strategies:

Keep Inheritance Separate

When you receive an inheritance, the best way to protect it from divorce proceedings is to keep it separate from marital assets. This means not depositing the inheritance into joint accounts or using it for joint purchases. By maintaining the inheritance as a distinct entity, it remains clear that it is solely yours, making it less likely to be considered marital property during a divorce.

Establish a Trust

Creating a trust can be an effective strategy to shield your inheritance from divorce. By placing the inherited assets in a trust, you can designate specific terms for how the assets should be managed and distributed. A trust not only provides clarity and protection but can also offer tax benefits and maintain beneficiary designations, regardless of marital changes.

Sign a Prenuptial or Postnuptial Agreement

A prenuptial or postnuptial agreement can provide explicit protection for your inheritance. A prenuptial agreement is signed before marriage, outlining how assets, including any future inheritance, will be handled in the event of a divorce. Similarly, a postnuptial agreement is created after marriage and can serve the same purpose. Both agreements help to legally safeguard your inheritance by clearly defining it as separate property.

Create a New Will

Updating your will after receiving an inheritance is important. A new will can specify how you want your inherited assets to be distributed and protected. By clearly stating your intentions, you can reduce the risk of disputes. This step is particularly important if your marital status changes, as it reflects your current circumstances and desires.

Maintain Proper Records

Keep detailed records of how and when you received your inheritance. This documentation can be crucial if your inheritance is contested during the divorce proceedings. Additionally, if you inherit property, such as a house or land, and want to protect it from potential divorce, you’ll need to maintain the title in your name only. Do not add your spouse’s name to the deed.

Bottom Line

Keeping an inheritance separate from marital property can help preserve its status as an individual asset if you later divorce. This may include maintaining a separate account, avoiding the use of inherited funds for jointly owned assets and keeping detailed records that show where the inheritance came from and how the money was used. Prenuptial or postnuptial agreements and certain trust arrangements may provide additional protection, but their effectiveness depends on their terms and applicable state law. Because property division rules vary considerably by state, consider consulting a family law or estate planning attorney before making significant changes to inherited assets.

Financial Tips for Divorce

It may help to work with a certified divorce financial analyst (CDFA), a financial advisor who specializes in helping divorcing spouses navigate the financial realities of their split. The CDFA credential is one of a number of certifications that financial advisors can pursue. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
A divorce will likely impact your tax filing status and tax liability. It’s important to figure out how your new filing status will affect your marginal tax rate. You’ll also want to update your W-4 to ensure your employer is withholding an accurate amount. Here’s what else you should be thinking about when it comes to tax planning after a divorce.