How Inheritances Can Affect a Divorce Settlement

Money changes everything. Even with the existence of estate taxes, the inheritance of generational wealth is one of the primary engines of upward mobility in America. In fact, with the ever-escalating cost of living, a failure to stake a claim to generational wealth can even lead to downward mobility. Upon inheriting money from parents or grandparents, most of us tend to send those funds straight to prudent long-term investment opportunities. However, divorce has a way of changing everything, too. During or even after a divorce, obligations to an ex-spouse can change where that windfall lands. Here’s how inheritances can affect a divorce settlement, whether in progress or retroactively.

Commingling of Assets

Traditionally, if one spouse receives an inheritance during marriage, that is considered individual rather than marital property. That all changes in certain circumstances. If a spouse deposits a cash sum in the couple’s joint bank account, that money becomes marital property. If you inherit a piece of property and marital property becomes involved in it—for instance, using that joint bank account to pay for maintenance of an inherited house, or selling that house and liquidating the asset—that, too, can become marital property. This is known as a commingling of assets. To prevent this, inheritors should shelter their money from any contact with marital property. However, that may not be sufficient in key instances.

Changes in Child Support

If your ex-spouse has inherited a large sum after your divorce, you may feel as if you—and far more importantly, your child or children—have lost out. Had you stayed together, this windfall would have meant a significant change in your family’s quality of life. But it still can. You can petition the court to amend an existing child support agreement. Even if your children aren’t named in the will, the extent to which they would have nonetheless benefited from gaining this money or property is often reason enough for the court to allow a modification to the terms of child support.

Transmutation

Changes in paperwork regarding tangible property or real estate are an example of how inheritances can affect a divorce settlement. If one spouse inherits property, such as a house or a car, after the death of a loved one, that person may choose to put his or her spouse’s name on the deed as well. Similar to commingling of assets, this transmutation changes the inheritance from personal property to marital property, as both people have now assumed costs associated with that ownership, such as insurance or taxes.

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