These questions are only compounded when one of the parties has received an inheritance. What about that money your grandparents left for you in their will when they passed away years ago? Or how about the summer vacation home that has been in your spouse’s family for years? Is a person entitled to part of their spouse’s inheritance, even though it was meant as a gift only to their spouse?
The general rule in Virginia is that an inheritance remains the exclusive property of the spouse who receives it. This applies even if the inheritance was obtained during the marriage, as long as it was not intended for both spouses. However, there are circumstances where one party’s inheritance may be subject to division by the court. These circumstances, along with how a party may best protect their inheritance, are explained in more detail below.
How Will the Court Classify an Inheritance in a Virginia Divorce?
The court in any Virginia divorce may order the equitable distribution of the parties’ property and debts. In any equitable distribution case, the court must first determine whether property is separate, marital or part separate and part marital. If property is classified as separate, then it is not subject to division by the court. If it is classified as marital, then the court will divide the property according to the factors listed in Virginia Code § 20-107.3. It gets more complicated if the property is classified as part separate and part marital (often referred to as “hybrid” property), which will be explained below.
§ 20-107.3 outlines these property classifications in great detail, offering definitions for marital, separate and hybrid property. One type of property defined as separate is “all property acquired during the marriage by bequest, devise, descent, survivorship or gift from a source other than the other party.” [“Bequest, devise, survivorship or gift” are just fancy terms for describing an inheritance.]
So, the Virginia Code defines inheritances and gifts from third parties to be separate property. That means a person will not receive any share of their spouse’s inheritance in a divorce, right? Not so fast. Separate property can become part marital property if the spouse is not careful. This is called “transmutation.” After defining separate property, § 20-107.3 lays out situations where separate property can be transmuted into marital property based on the actions of either party.
One way separate property can become part marital property is through “commingling.” In its simplest form, commingling means putting together or mixing assets. For example, if you deposit a cash inheritance into a joint bank account, it loses its identity as separate property and may be subject to division by the court. Same thing if one party uses their inheritance to purchase a home or automobile during the marriage and puts their spouse on the title to that new asset. If one party uses marital funds to improve a home they brought into the marriage, then they have created a marital property interest in that home—even without adding their spouse to the title.
Another way separate property can become part marital property is through the personal efforts of a spouse. If one spouse personally makes those improvements to that home they brought into the marriage, this could affect the home’s classification as separate property. As another example, if one spouse inherits money, uses it to build a stock portfolio, and then spends their own time actively managing that portfolio, they may have inadvertently converted that separate property into hybrid property. See Is the Increase in Value of Investments Marital Property in Virginia?
In cases where separate property has been converted into hybrid property, the court will determine how much is separate and how much is marital based on the amount of marital funds used. Both parties can expend significant amounts of time and money litigating this issue.
How Can One Party Protect Their Inheritance?
So, to protect their inheritance from becoming hybrid property and subject to division by the court, a person would need to keep the funds in a separate account away from any marital funds. They would not use the inherited funds for the benefit of marital property. If the person must use inherited funds for this purpose, they would need to document where these funds originated from so the court could later trace those funds back to their inheritance. They would need to make sure to keep any real property they inherited titled solely in their name. And, they would need to avoid using their own personal efforts to increase the value of the inherited property during the marriage. Finally, for a person who has received an inheritance and isn’t married yet, a prenuptial agreement would be a great way to protect their inheritance entering the marriage.
If you are facing a divorce and you or your spouse have received an inheritance, be sure to consult with an experienced family law attorney in your jurisdiction. From offices in Fairfax, Arlington, Manassas, Leesburg and Fredericksburg, the attorneys at Livesay & Myers, P.C. handle divorce cases across Northern Virginia. Contact us to schedule a consultation today.