Find out how an inheritance is influenced by divorce in Arizona. Our Phoenix Family Lawyers will explain the different options and nuances that may happen if getting divorced regarding an inheritance by one of the parties.
How Can I Shelter an Inheritance from a Marriage?
Arizona is a community property state, meaning that in a divorce, marital assets and debts will be split evenly between the spouses, but the spouses will keep their own separate property. Gifts and inheritance are typically classified as separate property, but must be properly separated from marital assets to avoid the asset being assigned any community property share.
Inheritance and Marriage
Even if inheritance is received during a marriage, it will be treated as that spouse’s separate property. It is vital to understand the separate nature of inheritance, as it isn’t uncommon for divorcing spouses to agree to cede their share in an asset or pay higher alimony because they believe they have a right to their spouse’s inheritance. Unlike a pension and other community assets, one spouse doesn’t earn a share of their spouse’s inheritance by virtue of being married.
Inheritance before Marriage
An inheritance received during marriage is separate property, so clearly an inheritance received before marriage is separate property as well. That doesn’t mean your spouse won’t try to go after it in a divorce. There are steps you can take when you receive your inheritance and before your divorce to prevent your spouse from having an entitlement to a share of it.
Basics on Commingling Inheritance
Assets can become commingled if they are stored in the same account, are used to prove each other, and more. Assets that are commingled are essentially mixed together, and the spouses will likely need attorneys to untangle the mess and prove who is entitled to what. Your separate property may become partially or fully community property.
Is an Inheritance Received During a Marriage Subject to Division?
This will depend on how good of a job the spouse who receives an inheritance does of keeping it distinct from community property. Your spouse may also receive a portion of an inherited property if they make improvements and assist in maintenance of the property. Your spouse may also become entitled to a share of your inheritance if commingling or transmutation is present.
What is considered Inheritance?
Inheritance is a property or asset you receive after a loved one passes away. You may either be named as an heir in that person’s will, or you may be the next of kin if that person is intestate, or does not have a will.
Is my spouse entitled to my inheritance if I divorce?
Your spouse may make contributions, monetary or nonmonetary, to your inherited property. For example, you inherit your family’s mountain cabin. Your spouse helps you clear out old belongings, clean and refurbish the cabin, and redecorate. Your spouse even refinishes a shower and paints a few walls. Your spouse also cleans the cabin each time you visit, preventing infestation and other damage to your property. While inherited property is typically separate property, your spouse may be awarded a partial share for the “sweat equity” they put into maintaining the property over the years.
Exceptions to the Inheritance is Separate Property Rule.
** Transmutation **
Transmutation is when through some legal procedure, separate property is “transmuted” into community property. A common example of this is when one spouse receives an inherited asset, such as a spouse, and lists their spouse on the title of that property. That spouse would need to prove in court during a divorce that the intention was never to turn that inherited asset into a community property asset.
** Commingling **
When your assets become commingled, the burden of proof in a divorce shifts to you to prove which amount is your separate property. Assets that become commingled will need to be “traced,” which can be complicated if there are significant withdrawals or interest in the commingled account. You should consult an attorney as soon as possible after receiving an inheritance to learn how to avoid commingling your inheritance with your marital assets, especially if you are considering divorce.
The Risks of Commingling Inherited Funds
Many people may mistakenly commingle community and separate property without even realizing it. If you deposit an inheritance into an account with community funds, it could become untraceably commingled.
Another issue with commingling inherited funds is that tracing back the source of funds for property division purposes can be extremely difficult. A common example is when spouses already have a stock portfolio, and one spouse expands that portfolio with inheritance funds. Later down the line, some stocks are sold and reinvested, while the proceeds from the rest are deposited into a savings account. If the spouses are to divorce, their attorneys will need to trace back the separate property deposit and determine how much of the total portfolio, including interest, it accounts for. You will need a family law attorney with plenty of skill and experience if you want to accurately trace back commingled inheritance funds.
How Can You Protect Your Inheritance?
The first step you should take when you receive an inheritance is depositing it into an account that has no community property funds. Keep clear and precise records of when and where you deposit inheritance funds. You may also want to consider placing your inheritance in a trust with someone besides your spouse named as the beneficiary.
Another way to protect your inheritance, if you expect one, is to specify how it will be treated in a pre- or post-nuptial agreement. Each of these can outline the intentions for certain assets. Any pre or post nuptial agreement must be free of fraud and coercion, and the spouses must have an opportunity to have the agreement reviewed by independent legal counsel. A solid agreement will be drafted and signed with the assistance of an experienced family law attorney, as the spouse may bring an action to challenge the agreement in a divorce.
If you are fighting to protect your inheritance in a divorce, you need an expert attorney to represent you. Call the Phoenix Divorce Attorneys at My AZ Lawyers today for your free consultation with one of our family law attorneys. Receive guidance on your next steps, and a fair quote for assertive representation all at no obligation for you, call today!