Inheritance can be a significant and emotional aspect of financial planning, often intended to secure a future or fulfill the wishes of loved ones who have passed away. Legally, an inheritance is classified as a nonmarital asset, meaning it belongs solely to the person who received it, not their spouse. However, the nonmarital character of an inheritance can be easily altered, or “transmuted,” into marital property, which can then be subject to division during a divorce. Additionally, income generated from an inheritance can be used to pay alimony, potentially impacting the financial security of the inheritor.
The risk to an inheritance becoming marital property or being used to pay alimony is often not well understood. This lack of understanding can lead to attorneys failing to provide their clients with the best advice to protect their inheritance. However, with proper planning, including comprehensive estate planning and carefully crafted marital agreements, these risks can be mitigated.
Understanding Inheritance and Marital Property
Transmutation occurs when nonmarital property is converted into marital property, either intentionally or unintentionally. This can happen through various actions, such as:
- Commingling Funds: If inheritance money is deposited into a joint bank account or used to purchase jointly owned assets, it can be considered transmuted to marital property.
- Gifts to Spouse: If an inheritor gifts part or all of their inheritance to their spouse, it can lose its nonmarital status.
- Marital Property Enhancements: Using inheritance funds to enhance or maintain marital property, such as renovating a jointly owned home, can lead to transmutation.
Income from Inheritance and Alimony
Income generated from an inheritance, such as interest, dividends, or rental income, can be subject to alimony calculations. This means that even if the principal amount of the inheritance remains nonmarital, the income it produces can be used to determine alimony payments.
Strategies for Protecting Your Inheritance
Estate Planning
Comprehensive estate planning can help ensure that inheritance is protected. This can include setting up trusts, which can provide control over how and when inheritance is distributed. Trusts can also help in keeping the inheritance separate from marital assets.
Marital Agreements
Prenuptial and postnuptial agreements are powerful tools in protecting inheritance. These agreements can explicitly state that any inheritance received by one spouse will remain their separate property, thereby preventing transmutation.
Separate Accounts
Keeping inheritance funds in separate accounts, distinct from marital finances, can help maintain their nonmarital character. It’s crucial to avoid commingling these funds with joint accounts or using them for marital expenses.
Clear Documentation
Maintaining clear and detailed records of inheritance funds and their use is vital. Documentation can help prove the nonmarital nature of the inheritance if it is ever challenged.
Understanding the risks associated with inheritance and taking proactive steps to protect it are crucial for ensuring that the wishes of the benefactor are honored and the financial security of the inheritor is maintained. By utilizing proper estate planning and marital agreements, individuals can safeguard their inheritance from becoming marital property or being used to pay alimony. Consulting with a knowledgeable attorney who specializes in estate planning and family law can provide the necessary guidance to navigate these complex issues and develop a tailored strategy to protect your inheritance.
Lori Vella is an Estate Planning and Business Attorney. She works virtually throughout Florida and New York, but has her home office in Tampa, Florida. She is mom to a little boy which ignited the passion for helping other families. She and her son enjoy car rides, playgrounds and taking mini-adventures. They also have an organic garden that surprisingly yields vegetables. Lori considers herself well-versed in Seinfeld and welcomes any trivia!
Disclaimer: The Law Office of Lori Vella’s website contains general information directed to Florida residents. This firm does not intend to give legal advice through its pages and/or blog. If you need legal advice, we encourage you to find an attorney licensed in your state. This language on this website does not create an attorney-client relationship between you and this firm.