Is Inherited Money Marital Property? What You Need to Know

Inherited money is generally considered separate property, not marital property, in most states. This means if you divorce, your spouse typically has no claim to assets you inherited. However, if you mix (commingle) inherited money with marital assets, it can lose its protected status.

Understanding the rules around inheritance and marital property matters whether you're currently married, going through a divorce, or expecting to receive an inheritance.

The General Rule: Inheritance Is Separate Property

In both equitable distribution states (most states) and community property states (9 states), inheritances are typically treated as separate property belonging only to the person who inherited.

What "Separate Property" Means

Separate property is owned by one spouse alone and generally isn't divided in divorce. Common examples include:

• Inheritances received by one spouse
• Gifts given specifically to one spouse
• Property owned before marriage
• Personal injury settlements (in many states)

Why Inheritance Is Treated Differently

The law recognizes that inherited assets came from your family—not from the marriage partnership. The person who left you the inheritance intended it for you, not for your spouse.

When Inheritance Becomes Marital Property

Here's where people get into trouble. Separate property, including inheritances, can become marital property through:

1. Commingling

Commingling means mixing your inheritance with marital assets to the point where they can't be distinguished.

Examples that convert inheritance to marital property:

• Depositing inheritance into a joint bank account
• Using inheritance to pay off joint debts
• Buying a house together using inheritance funds
• Investing inheritance in a joint brokerage account
• Using inheritance for regular family expenses

Once commingled, it's often impossible to "trace" which dollars were inheritance versus marital funds.

2. Transmutation

Transmutation is intentionally converting separate property to marital property—usually by adding your spouse's name.

Examples:

• Adding spouse to the title of inherited real estate
• Retitling inherited investments into joint names
• Signing a document agreeing the inheritance is now joint

Some states require explicit written intent to transmute; others don't.

3. Active Appreciation

If inherited assets increase in value during the marriage due to marital efforts, that appreciation may be marital property.

Example: You inherit a rental property. During the marriage, both spouses actively manage it, make improvements, and increase its value. The appreciation (not the original inheritance) might be marital property.

Passive appreciation (like inherited stock that goes up on its own) usually remains separate.

4. Using Inheritance for the Marital Home

This is a very common way people lose protection:

• You use inheritance as the down payment on a house titled jointly
• You use inheritance to renovate or pay off the marital home mortgage
• In many states, this makes the inheritance (or at least that portion) marital property

Community Property vs. Equitable Distribution States

Community Property States (9 States)

Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin

Rule: Marital property is split 50/50. But inheritances remain separate property unless commingled.

Equitable Distribution States (41 States + DC)

Rule: Marital property is divided "fairly" (not necessarily equally). Courts consider many factors. Inheritances remain separate unless commingled.

Key point: In both systems, the inheritance itself is protected—what matters is whether you keep it separate.

How to Protect Your Inheritance

If you want to ensure your inheritance remains separate property:

1. Keep It in a Separate Account

Open a bank or investment account in your name only. Never use joint accounts for inherited money.

2. Don't Mix Funds

Avoid depositing marital money into your inheritance account, and don't use inheritance money for joint expenses.

3. Keep Records

Maintain documentation showing:

• What you inherited and when
• Where the funds went
• That you kept them separate

Paper trail matters if you ever need to prove it.

4. Consider a Prenuptial or Postnuptial Agreement

A written agreement can clarify that inherited assets remain separate, regardless of what happens with commingling.

5. Don't Add Your Spouse to the Title

If you inherit real estate or investments, keep them in your name alone.

6. Be Careful with the Marital Home

Using inheritance for a down payment or mortgage payoff on a jointly-owned home is a common way to lose protection. Consider alternative arrangements.

What If You've Already Commingled?

If you've already mixed your inheritance with marital assets:

Can You "Undo" Commingling?

Sometimes, through "tracing." If you can document exactly which dollars were inheritance and follow them through accounts, you may be able to prove the separate property portion.

But this is difficult:

• Requires meticulous records
• Gets harder the longer ago the commingling occurred
• May not be possible if funds are truly mixed

Postnuptial Agreement Option

If you're still married and want to clarify that certain assets are separate, a postnuptial agreement may help—if your spouse agrees.

During Divorce

If you're divorcing and commingled assets are at issue, you'll need an attorney and possibly a forensic accountant to trace funds.

Special Situations

What About Inherited Retirement Accounts?

IRAs, 401(k)s, and other retirement accounts you inherit generally remain your separate property if kept separate.

Watch out for: Rolling inherited accounts into your own (non-inherited) retirement accounts or naming your spouse as beneficiary.

What If I Inherit During Separation?

Most states consider separation as the cutoff date for marital property. An inheritance received after separation is typically separate property.

What About Future Inheritances in Divorce?

Expected future inheritances (you expect to inherit from a living parent) generally aren't divided in divorce because they're not guaranteed. Courts don't divide assets someone doesn't yet own.

Does My Spouse Have to Know About My Inheritance?

This depends on your state and situation:

• During marriage, there's usually no legal requirement to disclose
• During divorce, you must disclose all assets, including separate property
• Hiding assets during divorce is illegal and can result in penalties

Frequently Asked Questions

Can my spouse take my inheritance in a divorce?

Not if you kept it separate. Inheritance that remains properly documented and unmixed with marital assets is your separate property. If you commingled it, part or all may become marital property.

What if I used inheritance to buy our house?

This is one of the most common ways inheritance loses protected status. The inheritance portion contributed to a jointly-owned home often becomes marital property. The exact result depends on your state's laws and whether you can trace the funds.

Does it matter how long I've been married?

Generally, no. Length of marriage affects how marital property is divided, but inheritance remains separate property regardless of marriage length—as long as you don't commingle it.

What if my spouse helped me manage inherited property?

If your spouse contributed labor or effort that increased the value of inherited property, that appreciation (not the original inheritance) might be considered marital in some states.

Can a prenup protect my inheritance?

Yes. A prenuptial agreement can clearly state that inheritances remain separate property even if commingled. This provides stronger protection than relying on default state laws.

What about an inheritance I received before marriage?

Property owned before marriage is separate property. So an inheritance received before marriage is even more clearly yours alone—unless you later commingle it.

Protecting Inheritance You Haven't Received Yet

If you're expecting to inherit while married:

1. Discuss expectations with family – If appropriate
2. Consider trusts – Your family could leave assets in a trust for your benefit, adding protection
3. Plan your accounts – Know where you'll deposit funds to keep them separate
4. Document from day one – Keep records from the moment you receive anything

Bottom Line

Inheritance is yours. The law protects it as separate property. But that protection only lasts if you keep it separate. The moment you mix inherited money with marital funds or add your spouse's name to inherited assets, you risk losing that protection.

If you're uncertain about your specific situation, especially if divorce is a possibility, consult with a family law attorney in your state.