Couples spend their lives accumulating assets, hoping for a comfortable retirement and leaving a legacy for their children. With the right investments and estate planning, they are planting the seeds of generational wealth for years to come.
However, parents’ common worry is, what happens if their child and spouse get divorced? Will the ex get part of the inheritance meant for their child and grandchildren?
Marital versus separate property
North Carolina is an “equitable distribution” state regarding property divided in a divorce, which means the division of marital assets will be fair but not necessarily equal. Marital assets are those acquired by either spouse during the marriage. Assets obtained before the marriage or by gift or inheritance during the marriage are typically not subject to division.
However, some circumstances could lead to an inheritance being classified as marital property:
- The inheritance is mixed with marital assets, such as deposited into a joint bank account or used to purchase jointly titled property
- It’s transmuted, which means that it’s used in a way that makes it appear as marital property, such as using the money to remodel the house owned by both of you.
To make sure that your inheritance remains separate property in the event of a divorce, you may want to consider the following:
- Avoid depositing inherited funds into a joint account or using them for joint purchases. Instead, open a separate bank account for your inheritance.
- Consider establishing a trust for your inheritance. This will allow you to dictate the terms of how the funds are to be managed.
- Maintain detailed documentation of how the inheritance was received and used.
If you will be receiving an inheritance from your parents, it’s crucial to ensure it remains intact for you and your children. Discuss the situation with someone who can guide you through deciding what is best for you.