Experts: Should You Split Your Inheritance With Your Spouse?

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If you’re married and you receive an inheritance, in some cases it can create an uncomfortable situation. For example, you might feel obliged to share it with your spouse, or your spouse may feel entitled to half of it. If you live in a community property state, you may even think you have no choice in the matter, and that you are legally required to share at least a portion of your inheritance with your spouse.

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But the fact of the matter is that in all 50 states, regardless of individual laws, federal law dictates that no inheritance is legally required to be shared with a spouse. However, even that blanket declaration can get muddled based on how you handle your inheritance.

Here’s a look at the legal requirements for an inheritance, how you should title it, and how to deal with the surrounding emotional and ethical obligations that are often associated with inheritances — especially in relation to your spouse.

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Legal Ramifications of an Inheritance

Legally speaking, an inheritance is always considered separate property. This is regardless of whether you receive your inheritance before, during or after a marriage, and it’s even true if you live in a community property state.

As long as you keep your inheritance as legally separate property, you won’t ever be required to share it with your spouse, even if you end up divorcing.

How Titling Your Inheritance Matters

Titling is the area in which the proceeds of an inheritance can get messy. Although you’re the only legal owner of an inheritance you receive, if you transfer that ownership in any manner, you’ve lost your sole legal claim forever.

For example, if you receive a $100,000 check as an inheritance and deposit it into your joint checking account, your spouse immediately becomes a partial owner of that money. In a community property state, your spouse now has legal ownership over one-half of your inheritance. This is true even if you accidentally put the money into your joint account and transferred it into an account in your sole name 30 seconds later.

The same is true if you use that money to buy a house and put the title in the joint name of you and your spouse. The legal term for all of these actions is “transmutation of property,” which means you are changing (“transmuting”) your inheritance from single name to joint name.

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Emotional and Ethical Issues Surrounding Inheritances

Of course, legal issues aren’t the only ones surrounding an inheritance. More often than not, emotions are attached to finances as well.

For example, imagine a scenario in which two spouses share a joint bank account, have both their names on the title of their house and otherwise share everything financially. If one of the spouses receives an inheritance, the other may expect that the funds will be deposited into their joint account for them both to share. However, the inheriting spouse may have been advised by a lawyer or even by friends to keep that money separate in the off chance that the marriage dissolves sometime in the future. This can obviously rub the non-inheriting spouse the wrong way.

Another common scenario is one in which an inheriting spouse intends to share everything financially but is requested by the decedent to keep the inherited money separate. In this case, it can be hard to decide whether or not the beneficiary should go against the wishes of the decedent or do as requested at the risk of creating conflict with his or her spouse.

What Do Experts Say To Do?

The bottom line when it comes to inheritances is that it can be hard to make the right financial move without risking an emotional reaction. For this and so many other reasons, it makes sense for a couple to sit down with a financial planner and/or an attorney to go over the options and outcomes of any future inheritances before they actually occur. This way, a couple can reach an agreement about how to handle these types of situations before emotions get heated.

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However, there are other ways professionals can help as well. According to New York estate planning attorney Martin M. Shenkman, “The most important thing that the independent professional brings is objectivity.” In other words, it helps to have a professional around during the time when you’re making emotional decisions regarding money.

Another suggestion regarding inheritances comes from GHMA Law, who stress that the use of prenuptial or postnuptial agreements is a good way to hash out differences regarding inheritances ahead of time and then agree to them in writing.

However you choose to handle your inheritances, the important thing is to address the issue head on and in advance if at all possible. This can both help you avoid unpleasant, emotional clashes with your spouse and help you keep your money titled the way that you desire.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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