So I received an inheritance…

If you received an inheritance while you’re married, you need to be careful how you treat the inheritance so that it does not run the risk of becoming mixed-up with your marital assets.

In Texas, assets (money, car, house, and other property) acquired during the marriage is normally considered to be marital assets that belong to the community.  This is also known as community property. However, when the asset was received by one of the spouses in the form of an inheritance, the asset received normally remains as a separate property of the receiving spouse.  (There are other ways in which a property may also remain a separate property even if received during marriage, but that is a topic for another blog.)

One of the easiest ways for the inheritance to become part of the community estate is “co-mingling.”  Co-mingling is when you take your separate property and combine it with a community asset, and the mixing is such that it becomes difficult to tell which part of the combined asset is community and which is separate.

For example, let’s say you have a bank account that was opened during the marriage. Sometimes during the marriage, you received a large sum of money from your late Uncle Bob.  You decided to put that inheritance money into that bank account.  For the next ten years, you continue to use that bank account to put in your paycheck, use it to pay bills, etc.  In the event that you now have to go through a divorce, you may be faced with the problem of not being able to take back that full amount (or any amount) of Uncle Bob’s inheritance money to you. 

Of course, this is just one of many ways of co-mingling.

Another way to run the risk of losing grip of your inheritance would be to add the name of your other spouse.  This is especially true if the inheritance is something like a vehicle or a piece of real estate property.

For example, ten years ago, you inherited a piece of land from your late Aunt Louise. Sometime after that, you decided to put your spouse’s name on the deed, but your name remains on the mortgage of the land.  Ten years later, when you go through a divorce, you may run the risk of only getting back half of that piece of land because you may now have gifted half of that piece of land to your spouse as your spouse’s separate property, or may have converted at least part of the inheritance into a community asset, depending on how the process was done and worded.  What makes it worse is that since the mortgage is still in your name only, the debt may still only belong to you! 

Again, this is only one example.  There are numerous other ways that one can run the risk of muddying up the separate nature of the inheritance. So what can you do to protect yourself?

One way is to create an account solely for the purpose of holding that inheritance.  You may also want to make sure that nothing else is put into it.  Of course, that is not a fool-proof method as any money you earned from that inheritance (say interest from the bank) may still be considered community earnings.  But at least the original amount is better protected. 

You may also want to be careful how you use the inheritance during the marriage such that you do not end up making the purchase into a community asset. 

There are more well-rounded ways to protect your inheritance.  One of which is to have both spouses enter into a postnuptial agreement. A postnuptial document is an agreement between the parties dealing with what to do with the assets and debts existing before and during the marriage. In the post-nuptial agreement, you may ask for the spouse to agree that anything acquired by the inheritance remains your separate property (even the bank interest.)  You may also ask the other spouse to agree and confirm which account should remain separate to you only.  Given that this is a legal contract that requires careful drafting to be effective, you may want to have an attorney do that for you.  

Your inheritance is a part of your beloved family members who wished to show their love for you by leaving you something that they held.  It is important that you take proactive steps to protect yourself and to protect that inheritance so that you won’t end up with a mess later. 

The content provided in this blog is for informational purposes only.  This is not legal advice, and your viewing of this blog does not form any attorney-client relationship. 

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