If you have or expect to receive an inheritance and are contemplating divorce, you may wonder how to protect your inheritance during the divorce process. That’s understandable. After all, an inheritance typically comes from a family member or loved one who cares about you, and it’s reasonable that in the midst of a divorce, you might not be eager to give part of that money away to your soon-to-be ex-spouse. Let’s take a closer look at what North Carolina law says about inheritances during a divorce, and how you might be able to protect them.
Consider A Prenuptial or Postnuptial Agreement
One of the best ways to protect your inheritance in the event of a divorce is to address it before divorce is even on the horizon. One way to do this is by entering into a prenuptial or postnuptial agreement. Often, these agreements focus on financial matters, including things like inheritance.
A prenuptial agreement is entered into before a couple gets married, and a postnuptial agreement is entered into after the marriage, but the purpose of both is the same. The purpose is to think through and determine how parties will resolve certain issues in the event of a divorce.
Before entering into a prenuptial or postnuptial agreement, it is important to consult with an attorney who knows and understands the law and can advise you on your particular circumstances. You may also want to consult with a financial advisor about any tax implications or other legal issues that may be involved with the inheritance itself. After doing so, your attorney can draft an agreement that suits your needs, and you and your spouse can sign it. At that point, the agreement will become binding until and unless it is later revoked or modified.
Many people don’t think of prenuptial and postnuptial agreements as being “romantic,” but they are very practical when addressing matters like an inheritance. Certainly, at the beginning of a marriage, no one wants to think they will ever get divorced, but sometimes it does happen. Having a prenuptial or postnuptial agreement can give you the peace of mind of knowing that your inheritance is protected, when and if divorce does occur down the road.
If you ultimately choose not to enter into a prenuptial or postnuptial agreement, however, you may have other options available to protect your inheritance. One includes avoiding any comingling of the inheritance with other assets.
Keep the Inheritance Separate
Like many other states, North Carolina has specific rules regarding property division. In North Carolina, there are three types of marital property. Those three types of property include:
Separate property
Separate property includes assets that are acquired before the marriage, as well as during the marriage (by gift or inheritance, for example), and which are not co-mingled with other assets.
Marital property
Marital property is acquired during the marriage, is shared jointly by the parties, and is subject to equitable distribution.
Divisible property
Divisible property includes changes in value to marital property after legal separation but before divorce, and certain income and assets received after separation.
As a general rule, inheritance is considered separate property, provided it remains separate. Those who want to protect their inheritance should keep it in a separate account, not in a joint marital account. Essentially, once the funds are deposited into a joint account, they risk becoming joint property as they may be considered to be “commingled” with the other assets of the marriage.
Keeping the inheritance in a distinct account or trust ensures that it is protected and can later be identified as separate property in the event of a divorce. At that point, when the property is divided, it will not be considered part of the overall marital property. Accordingly, it will not be subject to the same equitable distribution rules that would apply to marital property.
Establish a Trust
Creating a trust can also be an effective way to protect your inheritance in the event of a divorce. Placing the inherited assets in a trust and setting forth specific terms governing how the assets should be managed and distributed can protect the inheritance itself and provide other financial benefits, including tax benefits if appropriately constructed.
If you are considering placing your inheritance in a trust, it will be helpful to consult an attorney who has experience with estate law and can provide advice regarding your particular circumstances. Trusts, like any legal entity, can become complex. Talking to an attorney who knows and understands the law and can discuss your options as you go through the process can provide peace of mind and ensure you are making a decision that will be best for your family and your future.
Protecting an Inheritance for Your Children
In some instances, you may not be concerned about protecting an inheritance you received for yourself – you may be concerned about protecting it for your children if they undergo a divorce in the future. Generally, the same rules apply. You may also want to consider drafting your will in such a way that you ensure the inheritance is to be only for your children, and not for their spouses or any significant others. As is the case with creating a trust, creating a will that specifically and thoroughly addresses the issue will require consulting an attorney who knows and understands the law and can give you advice for your particular situation.
Understandably, all of these options for protecting your inheritance may sometimes seem complicated and confusing. That’s normal. The law can often be complicated. The good news is, you don’t have to face these complicated issues alone. At The Law Office of Dustin McCrary, we’re here to help.
The Law Office of Dustin McCrary – Here for You
At The Law Office of Dustin McCrary, we know that so much of the divorce process can seem complicated and overwhelming when you’re at the beginning of this journey. And that’s normal. The good news is that this isn’t a journey you must make alone. In fact, it’s one you shouldn’t make alone. This journey requires a guide – a guide who has walked the path before and knows all the twists and turns ahead. That’s where we come in. We know and understand every aspect of divorce law and want to use that knowledge to help you find the best solutions for your family and your future. You deserve nothing less. If you’re ready to get started, give us a call today. We look forward to speaking with you soon and learning how we can help.