Some couples make it through the tough times of marriage and emerge on the other side with a desire to share everything. These couples will probably never have to wonder how to safeguard their personal inheritances from their spouse. On the other hand, couples whose relationship appears to be headed for divorce may have a dramatically different perspective. Unfortunately, by the time divorce appears inevitable, it may be far too late to keep inherited assets from a spouse, even when those assets were never intended for anyone other than the recipient. The laws regarding what property you must share and what remains your own depend to some degree on whether you live in a community property state or an equitable distribution state. Florida, like the majority of states in the U.S., is an equitable distribution state. In a community property state, assets are split right down the middle during a divorce, while in an equitable distribution state, the assets are split fairly. Determining just what is fair, however, can be difficult during a contentious divorce. If the couple is unable to split their assets equitably, a judge will do it for them, based on a number of factors. Under Florida law, marital property and sole and separate property, such as inheritances, are handled differently. Marital property is everything earned or acquired during the marriage, by either party—unless you both agree otherwise. The money earned by one or both of you, the car you bought with money from your joint bank account, the home you bought, even the portion of your retirement fund which was added to during your marriage are all considered marital property. Separate property can include any of the following:
- Certain parts of a personal injury award are considered separate property. Any portion which repays you for lost earnings is considered marital property, while awards for pain and suffering are considered separate property.
- Property acquired by one spouse, which is acquired by using separate assets, is considered separate property.
- Any property which both spouses agree is separate property, through a post-nuptial agreement or another type of agreement, remains separate property.
- Any inheritances received prior to the marriage or during the marriage are considered separate property unless the inheritance is commingled during the marriage.
- Any property which is acquired during the marriage in one spouse’s name, which was purchased using the inherited money, and is never used for the benefit of the other spouse or titled in the other spouse’s name will probably be considered separate property.
- Gifts received by one spouse prior to or during the marriage, which are never used for the benefit of the other spouse or titled in the other spouse’s name, will be considered separate property.
- Any property owned by one spouse prior to the marriage, which has remained only in that spouse’s name and has not been used for the benefit of the other spouse or the marriage, remains separate property.
How an Inheritance Can Become Marital Property
While it may seem fairly straightforward—if you received a gift or inheritance before or during your marriage it remains yours—unfortunately, it is not always so simple during a divorce. Suppose your Aunt Effie left you a beach house on the Texas coast. During your marriage, the two of you not only use the house often for vacations, but you also add on to the house, using marital assets to do so. When your divorce rolls around, a judge may well deem the beach house marital property, by virtue of the fact the house was used by both spouses and marital funds were used to make improvements. At the very least, the marital commingling which occurred regarding the beach house could make it both separate and marital property. This could mean you are entitled to three-quarters of the house while your spouse is entitled to one-quarter of the house’s value. In other words, the non-inheriting spouse would have a right to a portion of the beach house which was improved with marital funds.
Protecting Your Inheritance by Avoiding Commingling with Marital Assets
If you received an inheritance of money prior to your marriage and did not protect the inheritance via a prenuptial agreement, then it might be considered marital property if you used the money to buy marital assets if you added your spouse’s name to the account, or if you added marital funds to the account. In fact, any person who is contemplating marriage who either has already received a significant inheritance or anticipates doing so should consider a carefully crafted prenuptial agreement that can help navigate asset division should a divorce occur. The only other way you can protect your inheritance, making sure you are allowed to retain an inheritance in the event of a divorce, is to diligently avoid commingling. This means you should always keep your inheritance completely separate from your marital assets. Avoid adding your spouse’s name to a bank account holding money you received from an inheritance, or adding your spouse’s name to the property you received from an inheritance. If you plan on making improvements to an asset received as an inheritance, be aware that if you use marital funds to make those improvements, then your spouse may be entitled to at least a portion of the inheritance. If you have already engaged in commingling your inheritance while married, there are specific methods to track contributions, determining what portion of the inheritance is now marital and what portion remains your separate property.
How an Inheritance Can Affect an Alimony Award
Even if your spouse is not awarded any part of your inheritance during the divorce, it may nonetheless impact an award of alimony. The goal of a Florida judge during a divorce is to determine whether one spouse has a clearly defined need for alimony while the other has a clearly defined ability to pay. A significant inheritance could naturally improve the ability to pay for the higher-earning spouse or reduce the need for the lower-earning spouse. If you have an inheritance of a significant amount of money, and your spouse has no job or other separate assets, you might be ordered to pay more alimony than you would have, if you had not had the inheritance. To elaborate further on assets acquired during a marriage, consider the following. If a particular property or asset was purchased or acquired during the marriage, it is considered marital property. This means that if one spouse purchased a very expensive classic car with money from his or her own paycheck and only that spouse’s name appears on the title of the car, it is still likely to be treated as marital property. If the car was purchased with inheritance funds—which had never been commingled—then the car would belong to the inheriting spouse, unless improvements were made during the marriage.
Any non-marital asset which increases in value—whether because one or both spouses spent marital funds or assets improving it, or through the work of one or both spouses—then the difference between the present value of the asset and what the asset was worth at the time of the marriage will be considered marital assets. Using the same classic car as an example, assuming one spouse bought the car prior to the marriage with inherited funds, then spent the next ten years of married life restoring the car. The car was worth $10,000 at the time of the marriage.
Even though the owner of the car was the only wage earner during the marriage, funds from a joint bank account were used to restore the car. At the time of the divorce, the car had increased in value to $35,000. A judge could well decide that $25,000 of the value of the car was marital property and would be split between the spouses while the original $10,000 would be awarded to the spouse who purchased the car with inherited funds. While the car situation is somewhat straightforward, it can get much more complex if the inheritance is a business.
If one spouse inherits a business from a family member during the marriage, then both spouses work in the business, which expands and increases in value, it can become much more difficult to determine what portion of the business is separate and which is marital. The increase in value to the business would probably be considered marital property, while the original value of the business would be considered separate, but the precise amounts can bring complexities.
What About Gifts Given to One Spouse by the Other During the Marriage?
When one spouse gives another a gift during the marriage, it is considered marital property. This means that if one spouse buys the other a $30,000 car for an anniversary gift, using funds from his or her inheritance, at the time of the divorce, the car is considered marital property, to be split equally, regardless of whose name is on the title. Many people find this difficult to understand, as it would seem a gift is a gift, therefore it should go to the person it is given to.
The Importance of a Prenuptial Agreement to Keep Inherited Assets Separate
If you absolutely want to ensure that inherited assets obtained prior to or during your marriage remain yours 100 percent, then having a Florida attorney help you accomplish this through the use of a pre or postnuptial agreement can be the best course of action. A prenuptial agreement can protect an inheritance received prior to your marriage, or, if you receive an inheritance during your marriage, a postnuptial agreement could be necessary. Clearly defining separate property through a prenuptial or postnuptial agreement can reduce conflict should you divorce, clarify special agreements between you and your spouse, and establish procedures and ground rules for the division of assets during a divorce.
Although many people believe negotiating a prenuptial agreement will inevitably lead to conflict, in reality, clear communication regarding money matters has been found to be beneficial in a marriage. It is important to remember, however, that the prenuptial or postnuptial agreement must address whether the appreciation of an inherited asset becomes marital property or remains separate property. It is also important to keep an inheritance completely separate from marital assets if you want to ensure it never becomes marital property. Don’t add your spouse’s name to an account with your inherited money in it if you don’t want it to become marital property. Don’t use inherited money to purchase the marital property. If you follow these rules, then there is a high likelihood your inheritance will remain yours, no matter the state of your marriage.
Issues to Remember Regarding Asset Division During Your Divorce
If you should find yourself in the midst of a divorce, there are certain things you need to remember about the division of assets, including your inheritance. The first thing to remember is that hiding assets from your spouse and your attorney is never a good idea. Courts have methods of punishing deceptive spouses who are not truthful about assets. If you fail to disclose all assets to your attorney, you have made it impossible for your attorney to protect your assets, including your inheritance.
Discuss openly with your Ayo and Iken attorney how your assets and property were acquired and how they were used during the marriage. These are important facts that can be used by your attorney to argue whether a specific property is marital property, or is yours alone by virtue of an inheritance or because you owned the property prior to your marriage and never commingled it.
In the end, in the state of Florida, while you may be able to walk away with your grandmother’s antique ring and the beach house Aunt Effie left you, without a clear prenuptial or postnuptial agreement it is likely you will pay, in some way, for keeping those inherited assets. The judge may offset your inheritance by awarding more marital assets to your spouse or could award a larger amount of alimony to your spouse because of your inheritance. If you are facing a divorce and are wondering whether you will be able to retain your inheritance, it is a good idea to speak with your attorney and determine the best way to do so.