There are many issues that one must face when dealing with a divorce or separation, some cases involve custody or alimony but almost all cases deal with some sort of property and/or debt division. There are many nuances to divorce law and some it can be very counter-intuitive. The pressure of a divorce can be exacerbated if one of the parties to a divorce has an elderly or frail parent for whom that spouse must provide care or in some cases the parent may have moved in with the parties or needs to move in with one of them soon. Then there is the issue of what happens to any inheritance that one party may receive during the divorce if an elderly parent or other benefactor passes away.
Property Division in a Michigan Divorce Case
To get to the issue of how the court will most likely handle an inheritance that occurs during a divorce, a discussion of how the court divides property is necessary. The court will divide the property into two categories, marital property and separate property. Marital property is pretty much any property that comes into the marriage through the efforts of either party, regardless of how it is held or titled. So any income that is earned, property that is purchased, retirement funds that are accumulated, businesses opened or developed and most other property will be considered marital and subject to an "equitable" distribution. This means that marital property will generally be divided in half between the parties. Separate property refers to a limited list of specific property that the court has deemed to belong to just one party or the other, this type of property is awarded to the owner of the property without any division or offset of other property to the other spouse.
Is an Inheritance Separate or Marital Property?
Typically an inheritance will be considered separate property and awarded solely to the inheriting spouse without any portion being awarded to the other spouse or any offset of other property to the other spouse. However, you should be very careful with an inheritance to avoid issues with commingling these funds with marital funds which will cause the inheritance to lose its separate nature and become subject to division. In order to keep it separate it should be held in a separate bank account in the name of that spouse alone and no other funds should be added to this account (other than passive interest). One can take money out, but not put the money back in. For instance, if I were to inherit $10,000 and keep it in a separate account without adding any money to it, the entire amount would remain mine. If I withdrew $5,000 and used it to improve the marital home with a new kitchen, that $5,000 would become marital but the remaining $5,000 in the account would be separate. However if I were to add income or other funds to the account or put my spouse's name on the account, then there is a good chance the entire account would be considered marital and subject to separate division.
What Happens to the Inheritance if My Parent Dies Right Before or During the Divorce?
As long as it is kept in a separate account or left in the estate, then it should be considered separate and not subject to division. However, there are always exceptions and it would be very wise to meet with a divorce lawyer who is versed in estate planning to help craft the proper estate plan for your parents in the possible event of your own divorce or if you are going through a divorce. This lawyer should also be able to properly defend the inheritance as separate property during the divorce. Please do not hesitate to contact our office to schedule a consultation.