When you’ve spent years building your wealth or inherited something precious from a loved one, it’s natural to want to protect those assets. Whether it’s financial accounts, property, or sentimental heirlooms, divorce can complicate things. No one enters a marriage expecting it to end, but life doesn’t always go as planned. This doesn’t mean you need to be pessimistic, but it does mean being thoughtful about protecting what’s important.
In this post, we’ll walk through practical steps to safeguard your inheritance from the risk of divorce, helping you make informed decisions that protect your financial future and your family’s legacy.
Understanding Marital vs. Separate Property
Before diving into strategies for protecting your inheritance, it’s essential to understand the difference between marital and separate property in North Carolina. In general, marital property includes assets acquired during the marriage, which are subject to division if you divorce. Separate property includes assets you owned before marriage or inheritances and gifts received by one spouse during the marriage.
While separate property isn’t typically divided during a divorce, the lines can get blurry if steps aren’t taken to keep it separate. And that’s where things can get tricky.
Keep Your Inheritance Separate
The simplest way to protect an inheritance? Keep it separate. This sounds easy enough, but in the day-to-day life of a marriage, lines can easily blur. Maybe you’ve inherited some money and decide to deposit it into a joint account or use it for shared expenses. If that happens, your inheritance could be seen as “commingled” with marital assets and potentially subject to division in a divorce.
To avoid this, make sure any inherited funds are kept in a separate account under your name alone. Avoid using inherited money for joint purchases like a house or a car, as this can complicate things later. If the lines between your separate and marital property become blurred, the courts might treat your inheritance as part of the marital estate. Keeping things clean and separate from the start can save a lot of headaches down the road.
Prenuptial and Postnuptial Agreements: Get it in Writing
One of the most effective ways to safeguard an inheritance is through a prenuptial or postnuptial agreement. A prenuptial agreement (signed before marriage) or postnuptial agreement (signed after marriage) clearly outlines how assets like inheritances will be handled in the event of a divorce. These agreements can specify that any inheritance remains separate property, not subject to division.
We get it—talking about these things before or during marriage can feel awkward. It might seem like you’re planning for divorce before you even start your life together. But it’s important to remember that these agreements aren’t about pessimism—they’re about security and clarity. By having these conversations early on, you and your partner are building a solid foundation for the future, removing any financial “what ifs” and focusing on your life together.
Estate Planning to Protect Future Inheritances
Maybe you’re not just thinking about protecting what you’ve inherited, but also about ensuring the inheritance you leave for your kids or grandkids is secure. If that’s the case, proper estate planning is key.
Setting up a trust is one way to protect the inheritance you leave for your children. A trust allows you to specify how and when your assets will be distributed, ensuring that the funds remain separate from any marital property your heirs may acquire. You can include instructions on how the assets are to be used, preventing the funds from being commingled with their spouse’s assets.
For example, a trust can make sure your children or grandchildren don’t access their inheritance until a certain age or life milestone. It can also specify that the inheritance remains their separate property, even if they get married. This helps ensure that your family’s legacy stays intact, no matter what twists and turns life may throw their way.
Keep Documentation Organized
Protecting your inheritance requires more than just keeping it separate from marital assets. Documentation is essential. If you want to be sure your inheritance remains protected in the event of divorce, maintaining a paper trail is critical. Keep clear records showing the inheritance was left to you, and that it’s been kept apart from joint property.
Here’s what to document:
- Copies of wills or trust documents indicating that the inheritance was left specifically to you.
- Bank statements showing that the funds were deposited into a personal, separate account.
- Receipts or titles for any purchases made with inherited funds, ensuring they’re in your name alone.
This documentation helps provide clarity and protection, should the need arise.
Avoid Using Inherited Funds for Joint Purchases
We understand the temptation to use inherited money for joint purchases like a home or a car. But once you do, it becomes much harder to keep those funds separate in the eyes of the law. Even if you use your inheritance for a down payment on a home you purchase with your spouse, that home might be considered marital property.
If you decide to make joint purchases with inherited funds, document everything thoroughly. But even then, it’s no guarantee that the courts will consider the inheritance separate. A little extra care can go a long way in protecting what’s rightfully yours.
Have Open Conversations with Your Partner
Protecting an inheritance doesn’t mean keeping secrets. One of the best ways to avoid misunderstandings and conflicts down the road is to have open and honest conversations with your partner about your finances. Money can be a sensitive topic, but discussing how you’d like to handle inheritances can help prevent future resentment or disputes.
Chances are, your partner will understand your desire to protect family assets, especially if they’re intended to provide for future generations. Prenuptial or postnuptial agreements can formalize that mutual understanding, reducing the risk of conflict later on.
Protecting Your Future, Protecting Your Legacy
At the end of the day, protecting your inheritance is about more than just safeguarding your finances—it’s about honoring the hard work and legacy of the loved ones who left it to you. It’s about making thoughtful decisions now that will protect your future and the future of your family.
Whether you’re receiving an inheritance or planning to leave one, taking the time to set up the right protections is worth it. If you have questions about how to protect an inheritance from the risk of divorce, or how to set up a trust for your heirs, we’re here to help. Reach out to us to discuss how we can help secure your legacy, protect your future, and provide you with peace of mind.
