How to Protect Inherited Wealth During Equitable Distribution Negotiations

Receiving an inheritance is often a deeply personal event, a legacy passed down from one generation to the next. It may come in the form of a family home filled with memories, a stock portfolio built over decades, or a direct cash bequest. When you are facing a divorce, the thought that this personal legacy could become part of the marital property to be divided can be distressing. The process is not merely financial; it is emotional, touching upon family history and your future security.

Is Inheritance Considered Marital Property in West Virginia?

A foundational question in any West Virginia divorce involving an inheritance is whether it will be classified as separate or marital property. The answer determines if the asset is on the table for division.

West Virginia Code generally defines “separate property” as assets acquired by one person before the marriage, or assets acquired during the marriage by gift or inheritance. This means that, by default, property you inherit solely in your name is considered your separate property and is not subject to equitable distribution.

However, this protection is not absolute. The lines can blur, and separate property can lose its protected status through actions taken during the marriage. This is where many of the challenges arise.

The Risk of Commingling: How Separate Property Can Become Marital Property

Commingling occurs when you mix separate property with marital property to the point where it becomes difficult to distinguish between the two. When this happens, the entire mixed asset may be treated as marital property by the court.

Here are common ways inherited assets become commingled:

Depositing Inherited Funds into a Joint Account: Placing inherited money into a joint checking or savings account used for marital expenses (like paying bills or funding vacations) is a classic example of commingling.
Using Inheritance to Purchase a Joint Asset: If you use inherited funds as a down payment on a home that is titled in both spouses’ names, that portion of the home’s equity may be considered marital.
Paying Down Marital Debt: Applying an inheritance to pay off a mortgage on the marital home or to clear joint credit card debt can transform the separate funds into a marital asset.

Once funds are commingled, it can be a complex and expensive process to “trace” them back to their original separate source, a task often requiring the assistance of forensic accountants.

What is Transmutation and How Does it Affect Inherited Assets?

Transmutation is a related legal concept where separate property is treated as marital property because of the owner’s intent. It happens when the owner takes actions that demonstrate a clear intention to treat the separate asset as a shared, marital one.

For instance, if you inherit a vacation cabin and subsequently add your spouse’s name to the deed, you have likely transmuted that property from separate to marital. This action signals to the court that you intended to gift the property to the marriage. Unlike commingling, which can happen accidentally, transmutation is often a result of a deliberate act that changes the property’s legal title or character.

Proactive Strategies to Safeguard Your Inheritance

The most effective way to protect inherited wealth is to take preventative measures, ideally long before a divorce is on the horizon.

Prenuptial and Postnuptial Agreements: A prenuptial agreement, signed before marriage, can explicitly define how inherited assets will be treated in the event of a divorce. It can be stated that any inheritance received by either party will remain their sole and separate property, regardless of how it is used. If you are already married, a postnuptial agreement can achieve the same goal. These legal documents provide clarity and can prevent costly disputes later.
Maintain Separate Accounts: The simplest and most powerful strategy is to keep inherited funds in a separate bank or brokerage account under your name only. Never deposit these funds into a joint account. Pay any taxes or expenses related to the inheritance from this separate account to maintain a clean financial trail.
Avoid Using Inheritance for Marital Purposes: Resist the temptation to use your inheritance to pay for joint expenses, purchase shared assets, or pay down marital debt. While it may seem practical at the time, it directly contributes to commingling and puts the assets at risk.

The Importance of Meticulous Documentation

If your divorce proceeds to litigation, the burden of proof is on you to demonstrate that an asset is separate property. Without clear documentation, this becomes a difficult, “he-said, she-said” argument.

From the moment you are notified of an inheritance, you should keep detailed records, including:

Estate Documents: Copies of the will, trust documents, and any correspondence from the executor or trustee of the estate.
Bank and Financial Statements: Maintain a complete history of statements for the separate account where the inheritance is held. This creates a clear paper trail showing the origin of the funds and how they have been managed.
Property Titles and Deeds: Keep copies of any titles or deeds showing the property was transferred solely into your name.

This documentation is not just for your own records; it serves as critical evidence for your legal team and for the court.

What Happens When Inherited Property Appreciates in Value?

Another layer of complexity is added when an inherited asset, such as a stock portfolio or a piece of real estate, increases in value during the marriage. The question becomes: Is that appreciation also separate property?

In West Virginia, the answer depends on the reason for the increase in value.

Passive Appreciation: If the asset’s value grew due to market forces alone (e.g., a general rise in the stock market or real estate values in the area), the appreciation generally remains separate property.
Active Appreciation: If the appreciation resulted from the active efforts or contributions of either spouse, that increase in value may be considered marital property. For example, if you inherit a rental property and your spouse manages the tenants, collects rent, and arranges for repairs, their contributions have actively increased the property’s value. Similarly, if marital funds were used to renovate an inherited home, the resulting increase in value would likely be deemed marital.

Distinguishing between passive and active appreciation often requires detailed financial analysis and expert testimony to determine the portion of the growth that is marital and subject to division.

Negotiating a Settlement Involving an Inheritance

During a high-asset divorce, many issues are resolved through negotiation rather than a court trial. When inherited assets are part of the financial picture, a few strategies can be useful.

Leverage Other Assets: You might agree to give your spouse a larger share of the marital assets (like the marital home’s equity or a portion of a retirement account) in exchange for keeping your inherited property entirely separate and free from any claims.
Provide Clear Tracing Evidence: Presenting your spouse and their attorney with clear, indisputable evidence that your inheritance has been kept separate can shut down attempts to classify it as marital. Thorough documentation from a forensic accountant can be very persuasive and encourage a reasonable settlement.
Consider Long-Term Financial Implications: Look at the total financial picture. Sometimes, it may make sense to concede a smaller asset to protect a larger one or to avoid the costs and stress of litigation over a contested inheritance.

Secure Knowledgeable Legal Guidance for Your West Virginia Divorce

Protecting your inherited legacy during a divorce is a complex endeavor that requires careful planning and a thorough familiarity with West Virginia’s equitable distribution laws. The actions you take—or fail to take—can have a lasting impact on your financial future. Ensuring that your separate property remains yours requires a proactive defense and skilled legal advocacy.

The legal team at Pence Law Firm is dedicated to helping clients navigate the financial complexities of high-asset and contested divorces. We are prepared to review your situation, explain your rights, and develop a strategy aimed at preserving the assets you are entitled to keep.

To schedule a confidential consultation, contact us online or call our office at 304-345-7250. Let us help you lay the groundwork for a secure new beginning.