22. Why You Should Keep an Inheritance Separate

Receiving an inheritance from a loved one is often bittersweet. While it represents a meaningful gift and lasting legacy, it can also create legal complications if it is not handled properly. One of the most important steps you can take after receiving an inheritance is to keep those funds separate from your marital assets. Failing to do so could have significant legal consequences.

Why Separate Accounts Matter

In most jurisdictions, inheritances are initially classified as separate property because they are personal gifts to the individual rather than assets acquired during the marriage.

However, depositing inherited funds into a joint account or using them to pay shared household expenses can cause those funds to become marital property. Keeping your inheritance in a separate account makes it much easier to demonstrate that the assets belong exclusively to you.

Keeping inherited funds separate can also help protect any interest, capital gains, or appreciation generated by the inheritance, preserving both the original gift and its future growth.

Protection Beyond Divorce

Maintaining inherited assets separately is not only about divorce.

If your spouse experiences significant financial difficulties, bankruptcy, or becomes the subject of a lawsuit, jointly owned accounts may be vulnerable to creditors. Funds maintained in an individually owned account are generally much better protected.

Separate ownership can also help preserve the wishes of the loved one who left you the inheritance. If your goal is to pass those assets on to children from a previous marriage or use them for a specific purpose, maintaining separate ownership helps ensure you retain control over how the funds are ultimately distributed.

Finally, maintaining separate accounts provides financial clarity. It allows you to make investment decisions with confidence while avoiding confusion over whether inherited assets have become part of the family's shared finances.

Best Practices

If you receive an inheritance, these simple steps can help preserve its status as separate property:

• Open a bank or investment account solely in your own name.

• Never deposit an inheritance check into a joint account, even temporarily.

• Keep detailed records, including wills, trusts, and estate distribution documents.

• Avoid using inherited funds for joint purchases such as paying down a mortgage, renovating a marital home, or purchasing a shared vehicle.

Some couples address these issues through prenuptial or postnuptial agreements. While these agreements can be valuable tools in certain circumstances, they are often more complicated, more expensive, and can lead to difficult conversations. In many cases, maintaining a separate account for an inheritance is a practical way to preserve its status as separate property.

Final Thoughts

An inheritance is more than money. It is a final gift from someone who wanted to leave a lasting impact on your life. Taking the simple step of keeping those funds separate can help preserve their wishes while protecting your financial future.

If you have questions about protecting an inheritance or other estate planning matters, contact Pickler Law at 901.244.4242 or click here to schedule a consultation.