Whether it’s the inheritance you get or the one you leave behind to your children, you may find yourself wondering how divorce will affect the inheritance. Passing along your legacy can be an important goal for you and a useful tool for your adult children. Additionally, your parents probably wanted to ensure that you can use the money and assets that they gifted to you, and not your ex.
Financial strategy, divorce planning and estate planning all come into play when you think a divorce may affect an inheritance. There are different considerations for your own inheritance versus an inheritance you pass on to your children. A few simple tips can help sort any confusion related to inheritance issues during divorce.
The inheritance you receive
In most states, including Arizona, an inheritance is considered separate property unless it becomes commingled with other property; then it becomes community property. Community property is the property that a married couple shares and that is subject to division during a divorce.
The best way to protect your inheritance in case of divorce is not to commingle it with other shared property. For example, you may wish to keep the inheritance in a separate bank account. If you choose to use the inheritance to make improvements on the primary residence, the inheritance becomes community property as well. Should the inheritance lose its status as separate property, it may become subject to property division with your ex.
The inheritance you give away
How will divorce affect the legacy you leave to your children? In most states, each spouse can bequeath his or her own separate property. You can give your share of the community property as you see fit also. The best way to take care of any children outside the marriage is through a will or a trust.
If you are worried that your adult child’s divorce will affect the inheritance you give to them, consider giving the assets in only their name, and encourage your children not to commingle the property. By making your wishes clear through a will or a trust, you can protect the inheritance you leave for your children.