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June 2018 Newsletter

HOW A PRENUPTIAL AGREEMENT CAN PROTECT A FUTURE INHERITANCE

Generally, when two individuals are planning an upcoming wedding, the furthest thing from their minds is planning what happens in the event that they eventually divorce.  While divorce is not a romantic thing to think about while you are planning what should be one of the happiest days of your life and is all about love, the reality is that today, approximately fifty percent (50%) of marriages end in divorce.  Protecting yourself and your assets is an important consideration, especially since it could potentially end up saving you a lot of money, time and stress in the future in the event that you and your future spouse end up divorcing.  This is especially true if one of the soon-to-be spouses anticipates receiving an inheritance in the future.  If assets, such as a future inheritance are not protected, they could end up being split with a divorcing spouse during equitable distribution.

One of the best ways to protect against losing a portion of a future inheritance is to enter into a prenuptial agreement, also called a “prenup.”  Without a prenuptial agreement, one spouse’s inheritance could be co-mingled or increase in value to the point where a significant amount of the inheritance would be lost to the former spouse in the event of divorce.

In general, inheritances by gift, bequest, devise, or descent are not considered marital property if the property is retained solely in the name of the spouse who inherited the property.  Furthermore, if the spouse uses the inherited or gifted property to acquire other property that after acquired or exchanged property is also excluded from equitable distribution. Nevertheless, as with property acquired by a spouse prior to the marriage, any increase in value of property received by a spouse through an inheritance or gift from a non-spouse individual will be deemed to be marital property and subject to equitable distribution in a divorce proceeding.

Also, if the property is re-titled in the name of both spouses, the inherited property becomes marital property and subject to equitable distribution at the time of a divorce.  The courts will presume that a gift or an inheritance which is re-titled in joint names is intended to be a gift to the marriage.

In these instances, having a prenuptial agreement can be very useful.  For example, if one spouse inherits a large sum of money and wants to use part of that money as a down payment on a home  or summer home to be held in joint names, that portion of the inheritance would normally become marital property.  In a properly drafted prenuptial agreement, the spouses can agree that the spouse who contributed the inherited money for the down payment will receive such sum and possibly a portion of the appreciation from the net proceeds if the home is sold during a divorce so that he or she can recover the inheritance.  The spouses can also agree that any future inheritance including all appreciation remains the property of the spouse who inherited the money and is not subject to equitable distribution.

With a fifty (50%) percent likelihood of divorce, all couples should discuss and consider prenuptial agreements to protect their current and future assets, including future inheritances, in the event of divorce.  If you have questions about how to best protect your future inheritance, our experienced attorneys can help.