When marriages end, the first worry people have is how to handle child custody and support. The second most important concern is dividing property and money. Texas is a community property state, and most assets will be split equitably. The law states that anything you receive “by gift, devise, or descent,” such as an inheritance, is counted as separate property, not subject to division when you dissolve the union. Despite this, there are certain situations where your spouse may claim part of your inheritance and put up a fight. You can benefit from speaking with an experienced family law attorney about protecting your inheritance in the event of a divorce. Instead of leaving it to chance, you can take legal measures to protect what is rightfully yours.
Community vs. Separate Property in Texas
Texas is a community property state. Everything you and your spouse own, regardless of whose name is on an asset’s title, will be divided equitably in a divorce. This does not mean it will be split 50/50, but in a manner the judge sees as “fit and right.”
Most assets and liabilities are considered community property, including vehicles, houses, land, bank and retirement accounts, furniture, and businesses. Identifying and legally declaring an asset as separate property is a critical action to ensure you keep both what you entered the marriage with and what came to you by inheritance during the union.
Other examples of separate property include:
- Stock dividends on separate investments
- Capital gains from the sale of separate real estate
- Funds or assets received as a gift to only one spouse
- Assets owned by one spouse before they entered into the marriage
Even though the law considers an inheritance as separate property, there are still questions that could make it difficult to protect if your spouse challenges your right to it. If the money or property was ever commingled with marital property or it increased in value during the marriage, you will need special guidance from a highly trained divorce attorney.
You May Have to Prove Your Inheritance Is Separate
The court will expect that each party in a divorce has worked with a lawyer to establish an agreement for dividing property. When spouses disagree about what is considered separate property, the purported owner will need to provide evidence that an asset, such as an inheritance, is indeed theirs alone. An investigation may be required to show proof that it remained separate.
The court cannot award you property that is separate and already yours. It must, however, confirm that the property at issue was an inheritance and, therefore, separate. So, in most situations, your inheritance cannot be claimed by your spouse. Yet, depending on the history of the inherited asset, you and your Texas divorce attorney may need to engage a forensic accountant to determine how much of it leaves the marriage with you.
For example, suppose you both lived off your inheritance funds, or you deposited the inheritance into a joint bank account, and you each used that money. This is considered commingling, and your spouse may fight to claim it as community property. Another example would be If you inherited a house and added your spouse’s name to the title. You could be at risk of having to sell it and split the value.
How to Keep Your Inheritance Separate and Safe from Divorce
Any seasoned and reputable divorce attorney will tell you that there is no such thing as “too safe” when it comes to protecting your property. There are many steps you can take to ensure your inheritance remains yours and keeps its status as separate property. Some of these can and should happen before you get married, and others can be completed if you’re already married when you inherit the asset.
Even the most blissful of marriages can change as couples grow older and their circumstances change. If you expect you may inherit sizable funds, family business interests, real estate, or valuable family heirlooms, you own it to yourself to follow these recommendations.
Establish an Estate Plan
If you are single when you inherit your property, it is clearly yours prior to your marriage. However, to add an extra measure of protection, you can work with an estate planning attorney to put your assets into a trust. This puts their control into a separate legal entity, which is not subject to community property laws.
Establishing an estate plan as a married couple is also crucial to avoid probate and ensure your heirs receive what you want them to get. If you enter a second marriage with children, putting your inheritance into a trust with your children as beneficiaries will transfer the assets to them immediately upon your death. As mentioned before, it’s critical to keep inherited property separate.
Negotiate a Pre-Nuptial or Post-Nuptial Agreement
While it might seem unromantic, signing a pre-nuptial or post-nuptial agreement can be one of the surest signs of a strong relationship. These discussions can be very uncomfortable to have, but they do three very important jobs:
- Expose any weaknesses around the couple’s financial skills and expectations
- Establish what will happen in a divorce, preventing lengthy battles
- Protect separate property for each partner
These agreements must be reviewed and signed by both parties, spelling out who owns what and who will receive each asset (individually or divided) if the couple divorces. They often include a full inventory and percentages each person will receive, in the case of businesses. Be aware that if you owned the business before the marriage, but your partner put in what’s known as sweat equity, they may claim they are owed a portion of the business’s value.
The same can happen if you inherit a family home and your partner puts in labor, time, and money to renovate it. Creating a clearly written and legal agreement about who will maintain ownership and control over all assets before there is a dispute will reduce stress during the marriage and if a divorce happens.
Request a Court Ruling Establishing Your Inheritance as Separate Property
In our example above, we mentioned a couple living off one spouse’s inheritance in lieu of working. If the money is commingled, you may need to request a court ruling confirming what part of the remaining inheritance is yours to keep. Even if you and your spouse are having an amicable divorce, it can all turn sour once they realize they will not get half of your inheritance.
Their friends or family members may push them to dispute whether your inherited assets are truly separate. This can lead to protracted negotiations, additional expenses, and more headaches for everyone. When facing such a drastic life change, many people feel as though they need to get everything they can, regardless of who it may hurt. Acting quickly to secure a summary judgment can prevent these problems before they begin.
Keep Separate Property Separate
It’s not enough to simply create a trust to control your inherited assets and call it a day. You need to work throughout the life of the marriage to ensure that what began as separate remains classified that way. For example, if you sell your part of an inherited business interest, you must keep the funds out of joint accounts. Even further, you could be at risk of commingling the money if you use it to purchase community property you’ll share with your spouse.
Another complicated situation may happen if you use interest, capital gains, or a portion of your inheritance to make improvements to marital property. For example, if you sell real estate or stocks and use that money to start a business you share with your spouse, you’ve created community property out of what started as separate property (or converted community into separate property).
Maintaining a relationship with your family law attorney can help you get answers to questions for your specific circumstances. They can connect you with accountants who have the expertise to keep your inheritance safe. They will also make sure you have the right documents created and filed so that if a divorce happens, you have fewer worries.
Turn to Terry & Roberts for Help During Your Divorce
The nuances of divorce can be confusing and overwhelming to someone who isn’t trained in interpreting the law. Marriage is highly romanticized in our society, causing us to overlook the fact that it’s actually a legal contract with the state government. When you think of it this way, you recognize the need to make sure you’re protecting yourself and the property you inherit.
Instead of taking risks that “love will overcome all,” let logic take the lead and establish a strong plan for protecting your inheritance in the event of a divorce. By scheduling a consultation with an accomplished Pearland high net worth divorce attorney, you can understand your legal options.
If you feel a divorce is in your near future, do not wait to take action. Even when a split is uncontested, you still need a lawyer to examine your situation and provide experienced advice. Contact the law firm of Terry & Roberts in Brazier County to arrange a meeting with our team today.