How Your Inheritance Became Marital Property in the Divorce

One of the most basic assumptions we have about the money left to us by our deceased relatives is that it’s our money. And in most cases, that’s pretty reliable — but divorce is not most cases. As it turns out, there are many ways that a pile of money (and this applies to any significant windfall, but is most painful when it’s an inheritance) can make the slippery transition from ‘mine’ to ‘ours.’ Most of them revolve around the fact that money is fungible, meaning every dollar is indistinguishable from any other.

Commingling the Funds
The most obvious way to turn an inheritance into marital property is to put it in a joint bank account. The moment that any pile of ‘my’ money joins any pile of ‘our’ money, the fungibility thing happens, and you can no longer separate out which dollar was which. Thus, it becomes impossible to withdraw ‘my’ money with any accuracy, and so the law labels the whole pile ‘ours.’

This also applies if the inheritance is spent as part of a larger commingled purchase. Say, for example, you wanted to add another bathroom to your house, and you spend your inheritance along with a few bucks from the joint account — or from a loan you filed for jointly. That inheritance money becomes ‘ours’ for exactly the same reason as the bank account’s money did.

Spending It Casually
When you spend money on everyday stuff while married, anything you purchased is automatically considered marital property unless you have a prenup or similar agreement to the contrary. That includes money from your inheritance. It doesn’t matter where the money came from, it only matters that you spent it while married.

This also applies if your inheritance is in the form of stuff, and you jointly sell the stuff for cash. That doesn’t have to be formal, either — even if it’s as simple as “my spouse wrote the Craigslist ad that we used to sell the baseball card collection,” the sale is a joint effort and thus the proceeds are ‘ours.’

Spending It Formally and Jointly
Similarly, if you spend your inheritance money making a major purchase (real estate, a car, stocks and bonds) in the joint name of your and your spouse, the thing you purchase is considered marital property. Much like the joint bank account, the moment both names are attached to a transaction, the results are martial property every time.

Managing It Jointly
If you inherit a business, and your spouse puts any amount of effort into running, maintaining, managing, or otherwise participating in the business, guess what? Yep — it’s been ‘ours’-ified. In fact, upon learning that you’re going to inherit a business, it’s generally a good practice to look into an antenuptial agreement that guarantees the business remains separate (if that’s your intent)!

Emergency Expenses
While it’s unusual, the Family Court of Michigan has occasionally used its enormous discretionary powers to ‘break open’ an inheritance and declare some or all of it marital property. Most often, this happens when it’s clear that one spouse is in dire need (i.e. has a potentially lethal medical condition) and the money is necessary to preserve their ongoing well-being. (For the record, there’s nothing particularly special about inheritance money in this fashion — just about anything can be declared marital by the courts if they deem the circumstances sufficiently extreme as to warrant the invasion.)

In short, if you want your inheritance to remain your own and not become marital property, you should immediately remove it from your spouse’s sphere of operations. Open a personal account, deposit the inheritance there, and don’t let them do anything to, for, or with it. It might seem cold, but if there’s any indication that your marriage might not last until death does you part, it’s the wise thing to do.