Many people assume that an inheritance will automatically remain separate property during a divorce, but the reality is more complicated. While inheritances are often treated differently than marital income or assets, how they are handled after receipt can determine whether they stay protected in the event of a divorce or become part of a divorce settlement.
In general, an inheritance received by one spouse alone is considered separate property, even if the inheritance at issue is received during the marriage. This means it is not automatically subject to division in a divorce. A problem generally arises, however, when inherited assets are mixed with marital funds or used in ways that blur the line between separate and marital property. This is commonly referred to as the commingling trap.
Understanding commingling and why it matters
Commingling often occurs when inherited money is deposited into a joint bank account, used to pay shared household expenses or invested in jointly titled property. For example, placing inherited funds into a joint savings account and then using that account to pay everyday bills can make it difficult to trace which portion of the money was inherited and which came from marital income. Similarly, using an inheritance as a down payment on a jointly owned home may convert at least part of an inheritance into marital property.
Once commingling occurs, inheritance may lose its separate character under the law. Courts often look at intent, documentation and the ability to trace funds when determining whether an asset remains separate. If records clearly show where the inherited funds went and how they were used, some portion may still be protected. However, poor recordkeeping or extensive mixing of funds can make it harder to preserve that distinction.
If an inheritance has already been commingled, it is not necessarily lost. Tracing is one possible remedy. A spouse may be able to demonstrate, through bank statements, transaction histories and financial records, that certain assets originated from an inheritance. In some cases, courts may recognize a separate property interest or provide reimbursement to the inheriting spouse.
Another option involves agreements between spouses. Postnuptial agreements can sometimes clarify how an inheritance will be treated moving forward, even if commingling has occurred. These agreements must meet legal requirements to be enforceable, but they can provide clarity.
The best way to keep an inheritance out of a divorce settlement is proactive planning. When that isn’t possible, speaking with a skilled legal team about the ins and outs of a particular concern can help.