How Is Inheritance Handled in a Divorce in NY?

Divorce is a hard time for anyone, and when a couple is going through a divorce, challenges always pop up. This is especially the case when it comes to dividing property and other assets.

One of the most complex asset divisions comes in the form of inheritance money. If someone receives an inheritance, either before or during the marriage, understanding how it is treated in a divorce is extremely important.

A divorce attorney, such as Divorce & Family Legal, LLC, should always be part of any divorce, especially when inheritance money is part of the process. They can also advise on how life insurance is handled in a divorce in NY.

Understanding Marital vs. Separate Property in New York

New York is a equitable distribution state. This means that during the process of divorce, the court will divide marital property equitably, but that doesn't mean 50/50.

There are two categories of property in regard to a divorce:

• Marital Property: Assets acquired by either spouse during the marriage.

• Separate Property: Assets that belong exclusively to one spouse and are not subject to division.

Is Inheritance Marital or Separate Property?

In general, inheritance money is not considered marital property. It is separate property funds. According to Domestic Relations Law §236(B) an inheritance that is received by one spouse, either before or during the marriage, is considered separate property.

However, this comes with a few exceptions that could result in the inherited personal property being treated as marital property.

When Inheritance Can Become Marital Property

There are few circumstances where inheritance money or property, which is considered separate property, could become marital property.

Commingling of Funds

If the inheritance money was deposited into a joint bank account instead of a separate bank account, or if it was used for joint expenses, even in a separate account, it might be considered commingled, which makes it marital property. The same goes if the money is invested into a jointly owned investment account.

An example of this is if one spouse inherits $100,000 and puts it into a joint bank account that is used to pay shared bills -- it could lose it's separate property status.

Using Inheritance to Purchase Marital Assets

Another example is when an inheritance is used to make a down payment on marital property or rental property that will mutually benefit both spouses. Property acquired during the marriage, including a marital residence, is usually considered marital property by New York law.

Improving Marital Property

Marital property includes anything that benefits both spouses, including improving that property. For example, New York state law says that if inheritance money is used to renovate or enhance a home, it would be marital property.

A New York divorce attorney can help their clients through the divorce process and help them understand how inheritance will be treated by New York courts. They can also answer questions such as how is credit card debt handled in a divorce in NY?

Protecting Inheritance During Divorce

It is possible to keep inherited property protected during a divorce. There are several legal strategies that can be used:

Keep Inheritance Separate

One of the most effective ways to keep an inheritance separate property is to keep it in an account that is not used for marital purposes. If the money is used for marital costs or to pay household bills, it could make the spouse entitled to the inheritance.

Prenuptial or Postnuptial Agreement

A prenuptial or postnuptial agreement can clarify that certain assets—including past or future inheritances—remain separate property, regardless of how they are used. This means that even in divorce proceedings, a person can keep their inheritance separate.

Equitable Distribution and Tracing

It's important that everyone involved in a divorce understands that the court determines if the inheritance is split when the marriage ends. Because of this, if the inheritance was partially commingled, the court might still allow the original owner to claim a part of the inheritance as separate property. This is done through a process called tracing. This is a complicated process, and it's best for people in this position to work with a knowledgeable divorce attorney.

Special Considerations: Inherited Real Estate

Real estate inherited assets are some of the most valuable, and it doesn't matter if the property acquired is a vacation home, empty property, or a family residence, it will be considered in divorce proceedings.

If a property is solely in one person's name, and no marital funds were used for maintenance or improvement, it will generally remain separate. However, if both spouses contributed to the upkeep of the property or made mortgage payments, the non-inheriting spouse may have a claim to the assets appreciation.

Inheritance Received by Both Spouses

Sometimes, both spouses are left an inheritance. In this case, it's almost always marital property. Unless one spouse can prove otherwise, this is part of the marital pot.

What Happens if the Inheritance Is Spent?

If the inheritance has been spent—on vacations, home improvements, or other joint expenses—the court cannot return the funds. However, the value may be factored into other elements of the divorce settlement, such as spousal support, child support, or the division of remaining property.

Spousal Entitlement to Inheritance in Divorce

Unless the inherited asset has been commingled or converted into marital property, a spouse generally has no legal claim to the other spouse’s inheritance. However, judges have broad discretion under equitable distribution laws and may consider factors such as financial need, contributions to the household, and the best interests of children when considering the marital estate and how divorce affects an inheritance.

Do You Need a Lawyer for Inheritance Issues in Divorce?

Yes. It's absolutely imperative. Inheritance and divorce law in New York is very confusing, and it can greatly affect the outcome of your case.

An experienced divorce attorney can help:

• Classify assets correctly as separate or marital

• Protect client rights to inherited property

• Draft legal agreements to safeguard future inheritances

• Trace commingled funds to assert claims

Trying to navigate inheritance issues without legal help can lead to costly mistakes and unfair settlements. For more information, our divorce attorney in Albany may be able to help.

Get a Free Consultation with a New York Divorce Attorney

Inheritance is a sensitive and significant issue when a couple decides to divorce. While the law generally treats inheritance as separate property, various actions—such as commingling or using inherited funds for marital purposes—can change that status and make it marital property.

To protect an inheritance, it’s essential to keep it separate. The person should also keep accurate records of any assets received.

Those going through a divorce and who have questions about how the inheritance will be treated, don’t wait. Speak with a knowledgeable family law attorney.