Occasionally an inheritance is an unexpected windfall, but an anticipated inheritance can also be an important component of a couple’s household budget or retirement planning. An inheritance, whether already vested (in the possession of the intended recipient) or anticipated, will become a factor in any divorce settlement.
Anticipated vs. Vested Inheritance
There is a huge difference between an inheritance that is expected and one that has already been received. Assets (i.e., property, a family business, stock, savings) that have been promised to one or both spouses “someday” have not yet materialized. Much could theoretically change between now and “then”. A business could go under or be sold. Savings could unexpectedly be given to charity. Stocks could tank. Real estate property could be devalued. As a result, an expected inheritance might still factor in during divorce settlement discussions, but would have a far lesser weight.
In contrast, vested inherited assets are technically considered to be marital property in Massachusetts, though the length of time a couple has been married and the treatment of the assets during the marriage factor in when determining what is equitable in the case of divorce. If a divorcing couple was newly married and one spouse had recently come into a lucrative inheritance, those vested assets will often go primarily to him or her. On the other hand, if the divorcing couple has been married for years, both spouses may have an entitlement to the vested assets under law.
Use of Vested Inheritance
An equitable divorce settlement will also consider what has been done with any vested inherited assets since being transferred to the divorcing couple. For example, if one or both spouses inherited stock and immediately reinvested the dividends rather than cashing out, this would have very different ramifications than if those dividends were factored in as part of the annual family budget.
In the case of real estate, it is important to know if an inherited house was sold, or if it became part of the marital fabric as a vacation or investment property. Such factors will weigh in on how to equitably allocate inherited assets.
As with most financial considerations during a divorce settlement, there are often more gray areas than black and white. While there are state rules that apply, there are also various case law applications and circumstantial factors that can weigh in more heavily than the parties realize. For example, if there are children, it may be important to make sure that they benefit from any anticipated or vested inheritance. If a couple chose to pay off their mortgage quickly rather than boost their retirement savings because they expected to inherit a family business, that might be factored into a divorce settlement.
Working with a Mediator or Collaborative Practitioner (CP) allows you to explore the options available to you. A professional will be able to come up with creative solutions to your particular scenario.