The law treats an inheritance differently than other income earned during a marriage. Even in community property states, an inheritance belongs to the spouse that inherited it, not to the couple. In a divorce, a spouse's inheritance is usually not included in a property settlement.
When a couple divorces, the court divides their marital property in accordance with the laws in their state. While "marital property" usually includes money and assets earned or obtained by either spouse during their marriage, it does not include an inheritance received by only one spouse as long the individual keeps that money separate from jointly held funds or property.
When a spouse adds money from an inheritance to a joint bank account or uses the money to buy a home or other property for the couple, the marital assets and the inheritance become "commingled". States deal with commingled funds differently when it comes to determining a divorce settlement, and a spouse who commingled her inheritance with marital property may find it difficult, if not impossible, to get her inheritance back after a divorce.
Tax and Inheritance Issues
If a couple divorces and their commingled funds include an inheritance, the heir may be able to get the value of his inheritance back through asset tracing. However, this is a long and arduous process, and can be quite costly, with some firms charging as much as £390 per hour to perform an asset trace, according to MSN Money. Because tracing assets is so costly, it may not be worth it in the cases involving a modest inheritance.
Spouses who receive an inheritance should talk to a financial professional about the advisability of commingling funds. In some cases, there can be estate tax advantages if the inheritance is commingled with marital assets, but this isn't true in all situations or in all states.
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