Is Inherited Money Considered Marital Property?

Is an Inheritance Considered Marital Property During Divorce?

When couples go through a divorce, the process of dividing assets can be overwhelming—especially when shared finances and jointly owned property are involved. But not everything accumulated during a marriage is automatically split. Some property is classified as marital, and other assets are considered separate—understanding the difference is critical, particularly when an inheritance is involved.

If you’ve recently received an inheritance or expect one soon, you may be wondering: Does my spouse have any claim to it if we divorce? It's a valid concern—and one worth exploring before making any financial decisions.

Understanding Property Types in Marriage

In divorce proceedings, assets generally fall into two categories: community (or marital) property and separate property. Each has distinct legal implications, especially when it comes to real estate and inherited wealth.

What Is Community Property?

Community property includes most assets and debts acquired during the marriage—regardless of whose name is on the title or who earned the income. Depending on your state laws, this property may be divided equally or equitably between spouses.

Examples of community property often include:

• Income earned by either spouse during the marriage

• Real estate or personal property purchased using marital funds

• Debts accrued by either party during the marriage

• Separate property that becomes indistinguishably mixed with joint assets

What Qualifies as Separate Property?

Separate property typically belongs solely to one spouse and is not subject to division in a divorce. These are usually items or funds that:

• Were owned by one party before the marriage

• Were gifted or inherited by one spouse (before or during the marriage)

• Were specifically designated as separate in a prenuptial or postnuptial agreement

• Were awarded solely to one spouse, such as personal injury settlements

So, Is Inherited Property Always Considered Separate?

Generally, yes. An inheritance—whether received before or during the marriage—is often treated as separate property. That means the recipient typically retains sole ownership, and it is not divided during divorce. However, this isn't always guaranteed. In some cases, inherited assets may lose their separate status depending on how they’re handled.

Let’s take a closer look at two key scenarios that can affect the ownership status of inherited funds or property.

1. Commingling

Commingling occurs when inherited funds are mixed with marital assets to the point where they can no longer be clearly separated. A common example? Depositing your inheritance into a joint bank account and using it to pay household expenses. When that happens, the line between “yours” and “ours” gets blurry—and a court may determine the funds have become marital property.

2. Transmutation

Transmutation involves intentionally converting separate property into marital property. For instance, if you use inherited funds to buy a home titled in both spouses’ names—or retitle a separately owned property to include your spouse—those actions may indicate you intended to share ownership. In the eyes of the court, this can effectively turn a separate asset into a marital one.

Quick distinction: Commingling is about mixing assets—transmutation is about intent. One may be accidental; the other is usually deliberate.

Protecting Your Inheritance in a Marriage

If you want to ensure your inheritance remains separate property, here are some smart strategies to consider:

• Open a separate bank account in your name only, and deposit inherited funds there.

• Avoid using inherited money for joint purchases or shared debts.

• Create a trust with you (or your children) as the beneficiaries.

• Keep clear records showing that the inheritance was intended for you alone.

• Consider a prenuptial or postnuptial agreement outlining how an inheritance will be handled in the event of a divorce.

Final Thoughts

As probate real estate specialists, we often see how inheritances—especially when tied to property—can lead to confusion and disputes during divorce. Understanding the distinction between separate and marital property is key to protecting what’s rightfully yours. Whether you’re inheriting a family home or a cash gift, the way you manage those assets can make all the difference.

If you have questions about inherited real estate or need guidance on how to hold title to protect your interest, don’t hesitate to reach out. The decisions you make now can have a lasting impact later.