Is Future Inheritance Considered in a Divorce Settlement?

How divorce impacts inheritance in Arizona

If you and your spouse managed your finances in the expectation that a future inheritance would someday provide for both of you, a divorce can upend those plans. Arizona’s community property law will have a major impact on how inheritances will be treated. Whether you or your spouse has inherited or stands to inherit a sizable amount of wealth, the Scottsdale divorce law firm of Clark & Schloss Family Law, P.C. can offer guidance. We can carefully review the circumstances of your marriage and inheritance to determine who is entitled to funds and how those funds may be protected.

How to protect an inheritance from divorce

Arizona law considers an inheritance payable only to one spouse to be the spouse’s separate property rather than marital property divisible between the spouses. However, this classification becomes murky when money received from an inheritance is commingled with marital assets — a process known as transmutation. This can occur when funds are placed in a shared bank account. Inheritance funds that are used to pay for items or services used by the whole family, such as the marital home or maintenance bills, likewise may be converted to marital property.

One of the most effective ways to protect an inheritance from property division during divorce is to sign a prenuptial or postnuptial agreement that clearly designates the inheritance as separate property of the recipient. Another way is to keep it completely separate from your marital finances. You may choose to put your inheritance into a living trust, which is outside the control of your spouse as long as he or she is not named as an owner or beneficiary. The trust may be revocable, allowing you to spend from it during your lifetime and pass down the contents to your children or other beneficiaries. Or you may establish an irrevocable trust that transfers funds to your beneficiaries upon your death.

Our divorce lawyers are available to answer questions about marital vs. separate property and how an inheritance can change from separate to community property if the funds are not handled carefully.

Does an inheritance affect alimony?

In Arizona, a divorcing spouse is entitled to alimony or spousal support only in certain circumstances. For example, alimony may be ordered if a divorce will leave one spouse with insufficient assets to provide for themselves or if one spouse made significant contributions to the marriage that enhanced the other spouse’s earning ability. The comparative financial resources of each spouse are among the factors that a court considers to determine the amount of alimony that should be paid. An inheritance may be counted among a spouse’s financial resources and therefore may influence an alimony order.

If one spouse receives a substantial inheritance after the divorce is over, it may be possible to seek a modification to the original alimony order. Either ex-spouse may petition to modify the order. For a petition to be considered by a court, there must be substantial and continuing changes in circumstances. Receipt of a large inheritance may be enough to justify a modification. However, proving the need for a modification could be difficult. In addition, many alimony agreements forged through mediation or negotiation include terms that make them non-modifiable. Note also that a spouse who did not request alimony during the divorce cannot submit a first request for alimony after the divorce is finalized.

Contact knowledgeable Scottsdale divorce attorneys for help with inheritance questions

The experienced divorce attorneys of Clark & Schloss Family Law, P.C. in Scottsdale, Arizona help clients establish strong protections to keep inheritances separate in a divorce or to argue for their inclusion among marital assets in appropriate cases. To schedule a consultation with a member of our legal team, call 602-789-3497 or contact us online.