Protecting an Inheritance During a Divorce

Q: I think my son will be getting a divorce in the future. How can I protect his inheritance?

A: When a couple gets divorced the Court, through the doctrine of Equitable Distribution, will attempt to divide the marital property as fairly and equally as possible based on numerous factors such as the length of the marriage, age and health of each party, and the earning power of each spouse. Under New York law, “marital property” is broadly defined as property acquired by one or both spouses during the marriage, while “separate property,” which is not subject to Equitable Distribution, is defined as property acquired by an individual prior to marriage.

There is, however, an important statutory exception: inherited property, gifts received from individuals other than one’s spouse, and compensation for personal injuries are considered separate property, even if acquired during the marriage, and thus not subject to Equitable Distribution upon divorce.

At first glance, it may appear that your son’s inheritance does not need protecting since any property he inherits would not be considered marital property, but this is not the end of the story. Separate property can become marital property if the asset is “commingled” i.e. the separate property is mixed with marital property. For example, if your son were to deposit his inheritance into a joint account with his spouse, use inherited assets to purchase a home with his spouse that becomes jointly titled, or his spouse contributes to the maintenance and capital improvements of a property inherited by your son, the assets would become commingled and therefore subject to Equitable Distribution upon divorce.

The best action you can take to prevent this from occurring is to leave your son his inheritance in trust. You could name your son as trustee or appoint someone else, and you would be able to limit distributions from the trust as you see fit. Importantly, the trust adds a layer of separation, better protecting the inheritance from his spouse and her creditors by maintaining its status as separate property.

Moreover, with a trust you can control the remainder beneficiaries of the property you leave your son after his death. If you were to leave him his inheritance outright, his own Will would dictate how his estate were to pass which could leave everything to his spouse if he so desires. But with a trust you could stipulate that upon your son’s death the inheritance could go to your grandchildren, your other children, your favorite charity, etc. or any beneficiary you wish.

Britt Burner, Esq, and Dylan Stevens, Esq. are attorneys at Burner Law Group, P.C. focusing their practice areas on Elder Law and Estate Planning. Burner Law Group P.C. serves clients from Manhattan to the east end of Long Island with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.