When Does an Inheritance Become Marital Property?

Someone could receive an inheritance they were aware of, or they might receive an inheritance as a surprise. Depending on the size of the inheritance, it could be an issue if marriage–and then divorce–is involved. Here’s what you need to know about inheritance and marital property to protect your assets appropriately.

What Is Marital Property in Tennessee?

To understand what happens with an inheritance in a marriage or divorce, it’s essential to understand what marital property is. “Marital property” is a legal term that refers to any property acquired during the marriage, which then is considered to be owned by the marriage. That includes both tangible properties, such as a house or vehicles (things that can be touched), and intangible property, such as intellectual property or goodwill in a business (something that can’t be touched).

Property brought to the marriage by an individual is considered separate unless each spouse contributes to that property. For example, if both spouses contribute to a savings account that was previously owned by one of them. This can also include intangible things such as one spouse becoming a stay-at-home parent or sole wage earner.

Retirement accounts that grew and appreciated during the marriage may be considered marital property. This is a complex aspect of divorce that should involve an experienced attorney.

How Is Separate Property Defined in Tennessee?

Tennessee has several items generally considered separate property. Here are a few:

• Any real property owned by the individual before marriage.
• Income and appreciation of property owned by an individual before marriage, unless it’s decided to be marital property through other legal means. A property division attorney in Nashville can advise you on how that could happen and what it means in terms of ownership.
• Awards and damages received by an individual for being the victim of a crime or injury, pain and suffering, and for future medical expenses and lost wages.
• Gifts, bequests, and other legal transfers that are at no cost to the recipient, including gifts from one spouse to the other, such as jewelry.
• Property the spouse acquired by exchanging other property owned before marriage. Once a couple has an order of legal separation and the court has determined final disposition of property, either spouse can acquire new property that’s considered separate.

How Does an Inheritance Factor into Marital Property?

In Tennessee, an inheritance given to one person in the marriage is considered separate property. But that’s not set in stone. If, during the course of the marriage, the inheritance is mixed in with joint bank accounts, or if it’s used for something that would be considered marital property (buying a house or vehicle), the state could consider it marital property when deciding the division of assets in a divorce.

However, there’s a flip side to having the inheritance become part of marital property. If someone is meticulous about keeping the inheritance as separate property, and the couple decided to divorce, the court could look at the value of the separate inheritance and reduce the amount of the marital property given to the inheritor.

How Can I Protect My Inheritance?

First, the inheritance should be placed in a bank or investment account in the recipient’s name only. Then the funds should never be used for any marital reason, including house payments or upgrades. That doesn’t 100% guarantee that the inheritance won’t end up divided in court, depending on many other factors, but it’s a start.

If the inheritance is received prior to the marriage (especially if it’s sizable), having a legal prenuptial agreement stating that the other spouse is not entitled to the inheritance at any point is recommended. Even with that agreement, keeping the funds separate at all times is highly recommended.

What Factors Do Courts Consider When Dividing Property in a Divorce?

There are myriad factors that affect how a court will decree property should be divided in a divorce. Each case is unique and may have factors that many other cases don’t. The following isn’t a complete list. Working with a Nashville family law attorney with extensive knowledge of how Tennessee courts divide property in a divorce would be beneficial.

• How long the marriage lasted.
• A variety of elements that could affect either party’s ability to support themselves, including but not limited to age, marketable skills and overall employability, potential earning, physical and mental health, financial assets and liabilities, and cost of living.
• If one spouse assisted the other through contributions (tangible or intangible) to the education or training and increased earning ability of the other.
• What contributions each spouse made to the marital property. This includes tangibles such as funding for a home. It also includes intangible benefits, such as one spouse contributing to the marriage by being the primary homemaker, parent, or primary income earner. In Tennessee, homemakers and wage earners are viewed equally if each spouse held up their end of the bargain.
• What property each spouse brought into the marriage, whether tangible or intangible, and the value of the separate property that exists.
• What the tax consequences of a divorce will be to each party as well as the amount of Social Security benefits available, now or in the future, to each spouse.
• What each spouse is likely to be able to earn in the future, whether it’s income or other sources of assets.
• How each party will be positioned financially once the property division is finalized and the divorce proceeds.

What Should I Do if I’m Going to Receive an Inheritance?

Call me at 615-492-2085 as soon as possible for a free, in-depth case evaluation. I can work with you to determine the best approach for the inheritance, whether it’s to protect it as separate property or use it as marital property. As discussed above, there are pros and cons for each approach. Each divorce is unique, with multiple factors to consider. Working with an experienced divorce lawyer in Nashville can help you avoid pitfalls and potential property loss.