Receiving an inheritance can help an heir or beneficiary enjoy a more comfortable standard of living. The resources that they inherit from their loved ones can augment their personal assets and income. Most people who receive sizable inheritances are more than happy to share their resources with their spouses and other immediate family members.
However, that generosity typically ends with the marriage. When people who have inherited substantial resources divorce, they are often anxious to preserve their familial wealth. The desire to protect an inheritance during divorce can lead to several major legal and financial moves.
How can people protect their family wealth during divorce?
Establishing trusts
One of the simplest ways to prevent claims against inherited property during divorce is to keep the assets separate. In fact, preventing them from becoming the property of the beneficiary can be an ideal solution. Testators leaving significant resources for their loved ones may use familial wealth to fund trusts. Recipients could also establish trusts to preserve their inherited property and keep it separate from their other resources.
Signing a marital contract
In some cases, people who receive an inheritance during a marriage decide to sit down to negotiate a postnuptial agreement to clarify that the inheritance is their separate property. Drafting a postnuptial agreement can also be part of the early divorce process. An agreement between spouses can simplify the process by limiting litigation and conflict.
Maintaining thorough documentation
Typically, inherited property is separate property under New Jersey state statutes. Even if someone receives their inheritance during marriage, they can theoretically protect their inheritance as separate property that they do not need to divide. Thorough financial records establishing the provenance of the resources and how someone has managed them separately throughout the marriage can help protect inherited assets from claims by the other spouse during divorce proceedings.
Avoiding commingling
Small choices related to inherited property can have devastating consequences. Adding a spouse to an account as a co-owner can lead to claims of commingling. Depositing inherited resources in a joint account can also constitute commingling. The non-beneficiary spouse could potentially insist that they have an ownership interest in those funds during a divorce. Similarly, adding a spouse to the title of inherited real property can also lead to commingling allegations and challenges during divorce proceedings. Additionally, spouses usually need to be cautious about using marital income to improve or maintain separate property, including inherited resources.
The sooner people take steps to protect their inheritances during divorce, the less likely they are to lose part of a loved one’s legacy during property division proceedings. Securing support and making key moves early can increase the chances of a beneficiary retaining most or all of their inheritance after a divorce.