When Does an Inheritance Become Marital Property?

Anderson, Creager and Wittstruck, P.C., L.L.O.
Hands separating wooden blocks, Division of property concept

One of the most contested and complex issues in divorce proceedings is the division of assets, particularly when it comes to inheritances. Inheritances are often a source of conflict because they can significantly impact each party's financial standing after a divorce.  

Inheritances are typically considered separate property, but they can become marital property if not handled correctly. Several factors will be considered to determine whether the inherited property remains separate property, how the inheritance is used during the marriage, and the laws of the state where the couple resides.  

Separate vs Marital Property

Separate property refers to assets that belong only to one spouse. These could be assets acquired before the marriage, inheritances, and gifts received during the marriage, and certain personal injury awards. This separate property remains under the sole ownership of one spouse and is usually not subject to division in a divorce. However, separate property can become marital property through commingling or if its value increases due to the efforts of one or both spouses during the marriage. 

Marital property includes assets owned jointly by both spouses. This encompasses all income earned by either spouse during the marriage, property bought with that income, debts incurred during the marriage, and other assets acquired jointly during the marriage. In case of a divorce in Nebraska, marital property is divided equitably between the parties.

Use of the Inheritance During Your Marriage

The way an inheritance is used during the marriage can impact its classification as separate or marital property. If the inheritance is kept entirely separate and not used for joint expenses or investments, it is more likely to be considered separate property.  

However, if the inheritance is commingled with joint funds and used for shared expenses or investments, then it may be considered marital property. This can become a contentious issue during divorce proceedings if there is no clear documentation of how the inheritance was used during the marriage. 

Nebraska State Laws and Commingling

The distinction between separate and marital property can vary by state, especially between common law property states and community property states. In community property states, most assets acquired during the marriage are considered marital property.

Nebraska operates under the equitable distribution model, which means that marital property isn't automatically split 50/50 in the event of a divorce. Instead, the court divides the property in a manner that it deems fair and just after considering various factors like each spouse's contribution to the acquisition of the property, the duration of the marriage, and the economic circumstances of each spouse at the time of the division. 

This means that assets and debts acquired by one spouse, including an inheritance, generally remain the property of that spouse alone, unless they've been commingled with marital property. For instance, depositing inheritance money into a joint bank account and using it for marital expenses can blur the lines between separate and marital property. This commingling can potentially change the character of the inheritance to marital property.  In a divorce case it is the burden of the spouse claiming inherited or other property is separate property to prove that is the case.

How to Keep an Inheritance Separate

To keep an inheritance separate from marital property, you need to take certain steps. These include:  

  • Keeping the inheritance in a separate bank account or investment portfolio under your name. 

  • Avoiding using the inheritance for marital expenses or jointly owned assets. 

  • Making sure that all documents and records related to the inheritance are kept separately from other financial records.  

  • Obtaining a prenuptial agreement, which can explicitly outline the inheritance as separate property and protect it in case of divorce.  

Having an open and honest discussion with your spouse about your intentions for the inheritance is also crucial. This can help avoid misunderstandings and potential conflicts down the line. 

The Role of a Prenuptial Agreement

One way to ensure that an inheritance remains separate property is by including it in a prenuptial agreement. A prenup is a legal contract signed before marriage that outlines how assets and debts will be divided in the event of divorce or death. It can also specify which assets are considered separate and which are marital. 

As long as the terms of the prenuptial agreement are fair and reasonable, and proper procedures are followed in it's execution, it can be an effective way to protect your inheritance in a divorce. However, it's essential to consult with a lawyer when drafting a prenup to ensure that all legal requirements are met. 

Here to Help You Protect Your Inheritance

When it comes to keeping an inheritance separate from a spouse in a divorce, it's important to avoid commingling the inheritance with marital assets. Legal agreements such as prenuptial agreements can further clarify the treatment of an inheritance in the event of a divorce. These agreements can specify how the inheritance will be treated and help ensure its separate property status. Consulting with a legal professional, especially in complex situations or when significant assets are involved, can provide personalized guidance and ensure that an inheritance is protected according to the laws of the jurisdiction. 

Understanding family laws about when an inheritance becomes marital property can be challenging. We're here to help. Whether you need assistance or have any questions, feel free to reach out to us at Anderson, Creager, and Wittstruck, P.C., L.L.O.  

We proudly serve clients throughout Lancaster County, Gage County, Saline County, Seward County, Otoe County, Cass County, and Saunders County. We're committed to offering professional, empathetic, and clear advice to guide you through these intricate matters.