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What happens to inheritance money in a divorce?

On Behalf of | Aug 28, 2017 | Property Division |

Property division can turn into one of the most contested parts of a divorce next to child custody. That’s because, like child custody disputes, matters concerning marital assets are often emotionally charged, a fact that can make legal matters difficult to resolve amicably without help from an attorney. However, there are other factors that can make property division a particularly challenging legal process, including the complexity of the asset, how difficult it is to value the asset, whether the asset is partly the separate property of one spouse, and whether an asset has both marital and separate components that have appreciated or depreciated over time.

Take for example inheritance money. Do you know how it is divided in divorce? If you’re like most people, probably not, and that’s okay. Determining how or if to divide inheritance money can turn into a complex issue for some. In order to resolve matters, there are some things that need to be considered first.

Separate vs. marital property

In order to determine how an inheritance would be addressed in property division, we must first look at property division laws in North Carolina, which are governed by N.C.G.S § 50-20.

This section states that in the event of divorce, property shall first be divided into two categories: separate property and marital property. Anything acquired prior to the start of a marriage is considered separate property and is not subject to equitable distribution. Any property acquired during the course of marriage, however, is considered marital property.

Separate property, naturally, is given to the applicable spouse while marital property is divided in an equitable manner.

How is an inheritance classified?

This is where things get tricky for people who have received an inheritance.

If an inheritance is received prior to the start of marriage, it is considered separate property provided the money stays separate throughout the course of marriage. If it becomes co-mingled – which can happen if the inheritance is placed in a separate savings account that is later combined with a joint savings account – the inheritance becomes marital property that is then subject to equitable distribution, unless the spouse who received it can “trace” the funds. This can be easy with accounts that still have a balance greater than the amount of separate property that was deposited, but can be more difficult in cases where most or all of the deposited funds were spent during the marriage. In those cases, funds that have already been spent cannot be “unspent” and allocated back to the spouse who originally received them. Additionally, under North Carolina law if separate funds (such as inheritance) are contributed to jointly titled real property, then there is a presumption that those funds were a gift to the marital estate. For example, if a spouse received an inheritance but then used those funds as a down payment for the marital home which was titled in both spouses names, this is presumed a “gift” to the marriage and the equity in the home, including the portion attributable to the down payment, is considered marital. The spouse who received the funds then has the burden to rebut the presumption that the funds are marital and prove they are separate.

If an inheritance is received during the course of marriage, a judge will need to look at a number of things including, but not limited to: if only one spouse was named as the beneficiary of the inheritance in the will, whether or not the inheritance was held in an account separate from marital funds, whether or not the inheritance was used to purchase marital assets, if the inheritance money ever co-mingled with marital assets, and if so, what type of asset it was co-mingled with.

Getting help from someone who understands the law

Because no one ever plans on getting a divorce, the co-mingling of inheritance money with marital assets is a very real problem for a lot of people. Most people only have a vague understanding of the law, which is not enough to properly evaluate whether inheritance money remains separate from marital assets, or know how to equitably divide it. That’s why, in these cases, in order to avoid contentious disputes, it may be necessary to consult with an attorney who has experience in these matters.