In a divorce proceeding, Virginia divides assets and liabilities (property) using the concept of equitable distribution. The first step in that process is to classify the assets as either marital, separate or hybrid (part-marital/part-separate). An inheritance usually starts out as separate property under the definition laid out in Section 20-107.3: Separate property includes all property acquired during the marriage by bequest, devise, descent, survivorship or gift from a source other than the other party. Then, any property acquired during the marriage in exchange for or from the proceeds of the sale of separate property remains separate property, provided that such property acquired during the marriage is maintained as separate property. Also, “income received from separate property during the marriage is separate property if not attributable to the personal effort of either party. The increase in value of separate property during the marriage is separate property, unless marital property or the personal efforts of either party have contributed to such increases and then only to the extent of the increases in value attributable to such contributions.”
Some times, however, we see situations where, during the marriage when there are no signs of trouble, inherited funds are put into joint bank accounts/investment accounts, used to buy jointly titled vacation properties, pay down a jointly titled home, etc. If inherited money is commingled, it can lead to reclassification of the separate property as marital property and can lead to the other spouse making a claim to that inheritance. The spouse having received the inheritance is then left with the need to prove that the commingled property can be traced to a separate asset in order to retain its original classification and eliminate the spouse’s ability to seek a portion of it. This is a document intensive process and depending on how far back the inheritance was received and whether records were kept it may or may not be successful.
There are many provisions in the Virginia Code that outline what needs to be done to preserve the treatment of an inheritance as separate property. Some parties seek prenuptial agreements in order to try to head off claims to inheritances; other parties make sure to keep inherited funds completely separate and not retitled to joint assets. Talking to a family law attorney can help you understand your rights and how to protect your inheritance for your future.