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Protecting children's inheritance from divorce

With roughly one in two marriages ending in divorce in the United States, it may be wise to account for this contingency in an estate plan. The following tips can help if you have children that you want to ensure receive an inheritance and do not end up giving the inheritance to an ex spouse.

Generally, an inheritance given in one individual's name remains the asset of that individual during a divorce. This is true in most cases as long as the asset is not comingled with other property. This means the inheritance should not be put into a joint checking or savings account, but should be kept separate from all marital funds to help better protect it from getting split if the couple were to divorce in the future.

Keeping the inheritance separate may sound easy in theory, but the reality can pose challenges. A person coming into an inheritance may be tempted to use it towards purchasing a home, which would be another move viewed at by the courts as comingling the funds. Although we can't completely protect our heirs from these decisions, certain legal tools can help offer protection.

One such tool is the trust. By putting an inheritance in a trust the person establishing the trust can offer some protection. Trusts can contain a variety of provisions. In these instances, a properly drafted trust may be able to shield the assets from the reach of a divorcing spouse. 

This is just one of the many options to consider when determining how to distribute assets. Contact an experienced estate planning attorney to review your options.

Source: The Star-Ledger, "Your Money: Protecting adult child's inheritance from ugly divorce fight and poor money decisions," Karin Price Mueller, May 12, 2014

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