Is Your Inherited Property Safe During A Divorce?

10 July 2017
 Categories: Law, Blog

The division of assets between spouses is part and parcel with the divorce process. If you have property you've inherited from a deceased relative, then chances are you're wondering if those assets will be treated the same as your other property. Read on to find out how the courts will likely handle your inherited property during a divorce.

Inherited Property is Usually Separate

Whether your state operates under community property laws or equitable distribution, the rules regarding inherited property are usually the same:

  • If the property was inherited to you and you alone, then it'll be considered a separate asset that isn't subject to division as a marital property.
  • If the property was inherited to you and your spouse, then said property is considered marital property and must be properly divided under divorce proceedings.

In other words, any real estate or other type of property specifically given to you as an inheritance will not only remain yours to do as you wish, but it also can't be divided as a marital asset. However, there's an important exception to this general rule as explained below.

Transmutation Can Add Complications

Transmutation, also known as comingling, describes an act that changes a property once considered a separate asset into marital property. Spouses can inadvertently transmute otherwise separate assets through otherwise innocuous acts. For instance, using money from a joint bank account to pay for upkeep and taxes on an inherited property can transmute that property into a marital asset. Having your spouse help with physical activities related to maintaining or improving your inherited property could also transmute its current status.

Complete and absolute separation is usually the key in defending your inherited assets against transmutation. As an example, it's best to use a separate bank account containing your own funds to pay for any maintenance, upkeep or taxes that are due on your inherited property.

Your Spouse May Be Entitled to Equity

If your inherited property happens to increase in value, then your spouse may be entitled to any equity accrued within the property. In the case of inherited property, equity is the difference between the inherited property's value when you received it and its current fair market value if it were to be sold now.

If you were to sell your inherited property as a part of the divorce proceedings, then any value outside of the initial value of the property at the time of inheritance may be divided between you and your spouse. If your inherited real estate was initially valued at $100,000 when you received it and you sell it for $200,000, then the $100,000 in equity will be divided between you and your spouse.