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Protecting your children’s inheritances if they divorce

On Behalf of | May 9, 2017 | Estate Planning |

If you’re drafting your estate plan with the intention of leaving some or all of your assets to your adult children, it’s essential to talk to them about their inheritances once you’ve determined what you are going to leave them. For many families, this may be the first time that parents and kids have discussed just how much there is in the estate. Many kids are surprised to find that their parents, whom they’ve always seen as tight with a buck while growing up, have actually amassed a good deal of money.

For many parents, it’s essential that their assets remain in the biological family. That may not happen if the kids get married — and divorced. An ex-spouse can end up with a significant amount of your child’s inheritance if it’s not protected.

Fortunately, there are steps you can take in your estate planning to help prevent that. However, your kids need to do some things when they marry to help ensure that your wishes are carried out.

Any inherited assets need to be maintained as separate property. If, for example, you leave a house to your child, only his or her name should remain on the title. Adding a spouse to the title will make it marital property. However, if the other spouse’s money is used to refurbish it, that can also complicate matters. If your child uses his or her inheritance to purchase a home jointly with a spouse, it can also be considered marital property.

Of course, any inherited assets placed into a joint account with a spouse also become marital property. That’s why special care has to be taken not to commingle separate assets.

A prenuptial agreement can help protect an inheritance. However, again, spouses have to take care not to combine assets in any way that can make them marital property unless they are prepared to share them with their spouse in a divorce. Here in California and other community property states, that means splitting them 50/50, even if one person contributed significantly more to a property, account or other asset.

If you’re leaving a sizable inheritance to your adult children, it’s important to get financial as well as legal guidance for them so that they can protect that inheritance for themselves and future generations.

Source: WTOP, “How to protect inheritances for future generations,” Nina Mitchell, April 19, 2017