When one spouse receives an inheritance, the other spouse may think they’ve hit the jackpot. However, reality is not quite this simple. Although state law will determine exactly what happens to an inheritance in a divorce, and how the inheritance is used can also make a difference, in general, the heir is presumed to be the sole owner, and the spouse may not be entitled to a share of the inheritance. Understanding the intricacies of state law is important to protect an inheritance.
Is an Inheritance a Marital Asset?
An inheritance is not typically considered a marital asset, but it’s important to consider both relevant state law and the specific circumstances. This is particularly relevant in the case of a divorce, when martial assets may be divided under state law.
During a divorce in Oregon, property is split following a doctrine of equitable division based on a presumption of equal contribution. However, some types of property are excluded from this division. Oregon law (Oregon Revised Statutes §107.105(f)(D)(i-ii)) states that property acquired though an inheritance or beneficiary designation is considered “property acquired by gift” and that “property acquired by gift to one party during the marriage and separately held by that party on a continuing basis from the time of receipt is not subject to a presumption of equal contribution.”
In other words, during a divorce, a married couple’s assets will be divided fairly, but if one spouse received an inheritance and kept this inheritance separate, that inheritance will not be divided. The spouse who received the inheritance gets to keep it.
Commingling an Inheritance
It’s important to note that Oregon law specifies that an inheritance “separately held by that party on a continuing basis from the time of receipt” is not subject to equitable division during a divorce. This raises the question – what happens to an inheritance if it is NOT held separately?
If the assets from an inheritance are commingled during marriage, those assets may be considered marital property and subject to equitable division during a divorce. For example, if you put money that you inherit in a joint bank account, use it to help pay for a jointly owned house, or use it to renovate a house shared by you and your spouse, the assets could be considered a jointly owned marital asset.
What If You Don’t Want Your Inheritance to Become a Marital Asset?
If you inherit money or property, you may want to retain separate ownership of the inheritance for a number of reasons. This could be because you worry that you and your spouse may divorce in the future, and you want to make sure you protect yourself. It could be because your spouse makes poor financial decisions, and you want to retain ownership to protect your future together. It could even be out of principal – a loved one gave the inheritance to you, not your spouse, and you want to honor that person’s wishes. The situation can become especially complicated when blended families are involved.
Regardless of the reason, if you want to retain sole ownership of an inheritance, it’s important to understand how the laws in your state govern marital assets. It may be necessary to keep the inheritance in a separate account that is not jointly owned. It may also be advisable to create a prenuptial or postnuptial agreement. Because these matters can be complicated, it’s advisable to work with an estate planning attorney.
What If You Don’t Want Your Estate to Go to an Heir’s Spouse?
You may want to name someone as an heir but not have that person’s spouse lay claim to the inheritance. Again, there can be many reasons for this. Maybe you don’t like the spouse. Maybe you don’t trust the spouse with financial decisions. Maybe the spouse has children from another relationship, and you want to keep your estate in your family line.
Although an inheritance is often not automatically considered a marital asset under state law, it may be considered a marital asset if it is commingled. Therefore, if you are serious about protecting an inheritance from a spouse, you may want to employ other estate planning strategies, such as the creation of a trust, to support this goal. An estate planning attorney can help you understand your options and decide how to move forward.
Do you need help crafting an estate plan that protects an inheritance from a spouse? Or are you receiving an inheritance, and you need help understanding the laws surrounding marital assets? Contant Skinner Law.