Newtown Divorces & Property Division: Are Inheritances Marital Property?

When a couple goes through divorce, marital assets are divided between them.  This is known as equitable distribution in Pennsylvania divorce cases, including those in Doylestown and Newtown. In a previous blog, we discussed what constitutes marital assets and when separate property may be considered marital assets

In general, an inheritance left to one party is not marital property and is, therefore, not subject to equitable distribution in Bucks County divorces.    For instance, if husband’s grandmother leaves a $50,000 inheritance to husband only, that inheritance is not subject to property division in a subsequent divorce. 

However, there are exceptions in instances when an inheritance left to one party alone during marriage becomes a marital asset and subject to equitable distribution.   

Comingling Inheritance with Family Bank Account 

Using the same example above, let’s assume that after receiving the inheritance, husband deposits the inheritance into a joint account with wife.  The money in this account is then used to pay bills such as mortgage, electric bills, etc.  Because the inheritance is comingled with joint funds, the inheritance is subject to property division. 

Investing Inheritance 

Again, using the same example, after receiving the $50,000 inheritance, husband deposits the inheritance into a high interest yielding bank account under his name only.  Five years later, husband and wife decide to divorce.  Although the inheritance to husband may not be subject to property division, the interest yielded during the marriage may be subject to property division. It gets even more complicated when the inheritance money is used to buy property, such as the family home or car. 

Vanishing Credit

In Bucks County, Pennsylvania the Court applies what is called a “vanishing credit” to what would otherwise be non-marital funds.  This doctrine provides that non-marital funds slowly become marital over the course of the marriage at a rate of 5% per year.  So even if pre-marital funds or inheritance is kept separate, it will become marital over time.

Protecting Your Inheritance 

There are ways parties can protect their inheritances in the event the marriage dissolves.  One way is for parties to sign a postnuptial agreement after a party receives an inheritance.  Like prenuptial agreements, postnuptial agreements are agreements between couples regarding the ownership of their respective assets should they divorce in the future.  The only difference is the postnuptial agreement is signed after the couple marries. 

Postnuptial agreements can protect a party’s inheritance, as well as its increased value during marriage.   With a proper postnuptial agreement, the inheritance and increased value should not be subject to equitable distribution. 

In order to best protect inheritances and separate property, parties should contact experienced Newtown and Doylestown, Bucks County divorce lawyers.   

Firm partner, Brian Coverdale is certified by the Institute of Divorce Financial Analysts as a Certified Divorce Financial Analyst (CDFATM).  This certification denotes Mr. Coverdale as highly proficient in the area of financial matters in  family law cases.