An inheritance typically starts out as the property of the individual who inherited it. That seems logical enough. With married couples, however, an individual inheritance quickly can be transformed from "separate property" (that is, property belonging only to one spouse) into marital property. Often the transformation of an inheritance from separate property to marital property is a very happy and intentional form of sharing between two people within a marriage. In other instances though, a spouse who inherited money or property may be very surprised to discover that "their" individual inheritance unintentionally has become shared property.
Inheritances can create major issues in both new marriages and in divorce property settlements. In Michigan, the case law varies widely depending on the particular circumstances of each case. Generally speaking, here are common ways an inheritance can become part of a couple's marital estate:
- The inherited monies are deposited directly into a couple's existing joint bank account.
- The inheritance is used to pay ordinary household bills and family living expenses.
- The inheritance is used to acquire real property or make investments in the name of both the husband and wife.
- The inherited property is combined with marital property or efforts. (For example, consider the example of an inherited cottage with a substantial new custom addition added by the couple using marital income or a joint loan. Another example is an inherited business, in which both spouses contribute their efforts to the business as employees or managers.)
- If there are special needs (such as a serious health condition) or other circumstances within a marriage, a court may determine that the inheritance must be divided in order to properly provide for one of the spouses in a divorce action.
Individuals interested in preserving an inheritance as their own separate property should consult with their attorney, of course. As a general rule, here are some tips to consider if you intend to keep separate property "separate:"
- Deposit and maintain the inherited monies in a completely separate bank or investment account, solely in the name of the inheriting spouse.
- Maintain inherited real or titled personal property in the name of only the inheriting spouse.
- Avoid using marital money to maintain inherited property or assets. (For example, avoid using marital money to pay real property taxes or upkeep on inherited real estate.)
- Avoid combining inherited money or property with marital money or property.
- For engaged couples, a prenuptial agreement can not only promote openness but peace, by confirming the parties' clear intentions about any separate property and inheritances that they are bringing into their marriage.
- For marriage couples, investigate the possibility of a post-nuptial agreement to confirm their intentions about how inherited property is to be characterized.
An inheritance should be a wonderful and positive way in which a loved one honors their surviving loved ones. Good planning and open communication before and during a marriage can help ensure that a couple shares the same view of an inheritance, so the focus can remain on their relationship and the happy aspects of receiving a valuable gift from a loved one.