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Protecting Inheritance from Divorce

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The main focus of most estate plans is to make sure beneficiaries receive the full benefit of their intended inheritance.

Protecting inheritance from Divorce in Ohio - Divorce Law A beneficiary’s divorce may be an obstacle to this goal.  If a beneficiary divorces, their spouse may claim an interest in assets inherited before or after a marriage. Most people, if given the choice, would not give half of their estate to their child’s ex-spouse.  With proper planning, however, this result can be avoided.
 
First, it is important to understand the difference between marital and separate property in the event of divorce. Ohio law defines marital property as real and personal property currently owned by either or both of the spouses as well as property acquired by either spouse during the marriage.

Separate property includes real and personal property inherited by one spouse by bequest, devise, or descent during the course of the marriage.

On the face of these definitions, it seems fairly simple.  One spouse cannot claim the property inherited by the other spouse.  However, life is not that simple.  Money is fungible.  It can be difficult to trace.  Most married couples commingle assets and use joint accounts to pay expenses and purchase property.  It is very easy to lose the separate identity of inherited assets.  Ohio law provides that inherited assets become marital property if they are commingled with other marital property and become untraceable.  Once the inherited property becomes untraceable, it is fair game in a divorce. 

Furthermore, Ohio law provides that all income and appreciation on separate property, due to the labor, monetary, or in-kind contribution of either spouse during the marriage, is marital property. In other words, when a spouse works to increase the value of separate property, she may claim part of it.  Only passive income and appreciation acquired from separate property remains separate.  An example of passive appreciation is the increase of value due to market forces, geographic location, and inflation, which are unrelated to the other spouse’s efforts.

In the event of a divorce, the spouse seeking to have a commingled property deemed separate property has the burden of proof to trace the asset. Oral testimony without a proper paper trail may not satisfy the burden. The domestic relations court ultimately will decide what is separate property.

There are a few ways to protect an inheritance from divorce:
  • First, a spouse should keep separate assets truly separate and keep thorough records.  They should not deposit inherited funds into joint bank accounts.  They should not use the inheritance to improve marital property.  They should not use the proceeds from the sale of inherited assets to purchase marital property.  Inherited real property should not be titled jointly with a spouse.
  • Second, an estate plan can include a revocable trust which would hold the assets for the beneficiary. Assuming a trust is properly drafted, the beneficiary’s inheritance should be protected from claims of a divorcing spouse.  The trade-off, however, is that a trustee will control the funds.  The beneficiary will not have unrestricted use of the inherited assets.
  • Third, a beneficiary can use a prenuptial agreement as a form of asset protection. A prenuptial agreement permits a beneficiary and his or her spouse to agree upon the characterization of assets owned at the time of marriage, and those assets earned subsequent to marriage.
Before you make important decisions about estate planing,  it is best to consult a trusted lawyer to discuss the unique facts and available options.  The attorneys at Laribee & Hertrick. LLP in Medina, Ohio can assist you.
 
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This article is intended to provide general information about the law. It is not intended to give legal advice.  Readers are urged to seek advice from an attorney regarding their specific issues and rights. To contact an attorney at Laribee & Hertrick, LLP, request more information about our legal services today.

 

 

 
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