Inheritances, especially large ones, can also cause problems if recipients make unwise financial decisions, are inundated with requests for money, or let the windfall change their relationships with loved ones. In some cases, marital conflicts can even arise.
Say, for example, Kim’s husband Mike inherited $450,000 from his mother. Mike won’t tell Kim what he’s doing with the money or even which account he put it into. This has left Kim pretty upset because she feels like the inheritance is hers as well.
But is that really the case, or does Mike have the right to hoard his cash since it came from his mom?
An inheritance isn’t necessarily marital property
Unfortunately for Kim, unless Mike’s mom explicitly left the money to both spouses, the money isn’t hers. The law says it is Mike’s alone, despite what Kim may believe.
“This is a classic unchecked assumption,” Lisa G. McCurdy, founder and managing partner of The Wealth Counselor, told Moneywise. She explained that it’s common for a spouse who inherits to think “mine,” while their partner thinks “ours,” even though that’s not generally the law when it comes to an inheritance.
“While various state laws differ in the specifics, the general rule is that inheritance is separate property,” Jason Grutter, a trust and estate attorney and partner at Trust Law Partners, LLP, told Moneywise. “This means that the money is all his, and you have no say over what he does with it.”
Roger Diefendorf, an attorney at Forum & Lex, P.C. who represents clients in marriage dissolutions, also explained to Moneywise that “if you were to divorce, the inheritance would not be split between the two of you.”
The inheritance may not stay Mike’s alone
Although Mike is likely the sole owner of his inheritance by default, this isn’t necessarily the case forever — and it also doesn’t mean that Kim won’t ever benefit from the money.
As McCurdy explained, the property’s status as “separate” from marital property can be lost, and several things could cause that to happen. Grutter said the property’s status could change if “your husband gifts a portion to you, uses some of the money to buy real estate with you, or deposits the inheritance into a joint account.”
When Mike combines his separate inheritance with marital property, this is called commingling, and it can give Kim an ownership interest. “If the inherited money gets mixed in with shared money and is used to pay for shared bills, over time it becomes difficult to sort out which money is which, and then you may be entitled to some portion of it,” Grutter said.
