Inheritance and Divorce in New York

Inheritance and Divorce in New York can be a complex issue, particularly when it comes to determining whether inherited assets are subject to equitable distribution. Here's a look at the biggest problem and potential solutions:

 The Biggest Problem: Commingling of Inherited Assets

In New York, inherited assets are generally considered separate property, which means they are not subject to division during a divorce. However, if those inherited assets are commingled with marital assets—such as depositing inherited money into a joint bank account or using inherited funds to purchase a family home—the inheritance may lose its separate property status. This commingling can make it difficult to distinguish what is separate and what is marital, leading to disputes during divorce proceedings.

 How You Can Fix It: Strategies to Protect Inherited Assets

1. Keep Inheritance Separate: The most straightforward way to avoid commingling is to keep inherited assets separate from marital assets. This means maintaining a separate bank account for any inherited funds and refraining from using those funds for marital expenses.

2. Use Trusts: Setting up a trust to hold inherited assets can provide an additional layer of protection. A trust can help ensure that the inheritance remains separate and is distributed according to the wishes of the inheritor, even in the event of a divorce.

3. Create a Prenuptial or Postnuptial Agreement: A prenuptial or postnuptial agreement can explicitly outline how inherited assets will be treated in the event of a divorce. This agreement can provide clarity and reduce the risk of disputes over inheritance.

4. Document Everything: If you do use inherited funds for marital purposes, it’s essential to keep detailed records. Document how the funds were used and maintain any paperwork that can help trace the inheritance. This can be crucial in proving that certain assets originated from an inheritance, even if they were commingled.

5. Consult with a Financial Advisor or Attorney: Before taking any action with inherited assets, it's wise to consult with a financial advisor or attorney. They can provide guidance on how to manage and protect the inheritance in a way that minimizes the risk of it being considered marital property.

6. Consider Separate Property Statements: During the marriage, you can create a separate property statement, which both parties sign, acknowledging that certain assets, including inheritance, are separate property. This can help clarify ownership in the event of a divorce.

7. Avoid Using Inheritance for Marital Debts: Paying off marital debts or joint expenses with inherited funds can make it difficult to argue that those assets are separate property. Instead, use marital funds for these purposes, and keep the inheritance distinct.

8. Regularly Review and Update Estate Planning Documents: Ensure that your estate planning documents, such as wills and trusts, are up-to-date and reflect your intentions regarding inheritance and asset protection in case of divorce.

9. Title Property Appropriately: If you inherit real estate, keep the property titled in your name alone. Avoid adding your spouse’s name to the deed, as doing so can turn the property into marital property and subject it to division during divorce.

10. Avoid Using Inherited Funds for Joint Investments: Investing inherited funds in joint ventures or businesses with your spouse can blur the lines between separate and marital property. To protect the inheritance, invest separately or use the funds in a way that clearly maintains their separate nature.

11. Use Inheritance for Personal Expenses: One way to maintain the separate status of inherited funds is to use them for personal, non-marital expenses. This keeps the funds distinct and reduces the risk of commingling.

12. Refrain from Commingling Retirement Accounts: If you inherit a retirement account, avoid rolling it into a joint retirement account with your spouse. Instead, keep it in a separate account to preserve its status as separate property.

13. Consider Gifting Strategies: If you’re concerned about protecting inherited assets from a potential future divorce, you might consider gifting some of the inheritance to other family members or setting up irrevocable trusts for your children. This can reduce the amount of inheritance subject to division.

14. Seek Early Legal Advice: If you anticipate receiving an inheritance or are already dealing with inherited assets, it’s wise to seek legal advice early on. A family law attorney can help you understand your rights and options for protecting these assets.

15. Be Cautious with Joint Accounts: Even if you initially keep inherited funds in a separate account, transferring them to a joint account later on can be seen as commingling. To prevent this, avoid moving inherited money into accounts shared with your spouse.

16. Regularly Monitor Financial Practices: Keep an eye on how you handle inherited assets throughout the marriage. Periodic reviews of how you manage these funds can help you avoid unintentional commingling and preserve the inheritance as separate property.

17. Use Legal Separation to Protect Assets: If your marriage is heading toward divorce, consider a legal separation. During the separation, you can take steps to protect your inherited assets, ensuring they remain separate property in the event of a formal divorce.

18. Negotiate Asset Division Strategically: During divorce negotiations, consider offering other marital assets in exchange for retaining your inheritance. This can help you maintain ownership of the inherited property while still reaching an amicable settlement.

By implementing these additional strategies, individuals can further safeguard their inheritance from being subject to division during a Inheritance Divorce New York, helping to ensure that their assets remain protected and their financial interests are preserved.