Virginia law classifies inherited property as separate property even if you receive an inheritance during the marriage. In a divorce action, the Court only has the authority to divide marital property, and therefore, you will be able to retain your inheritance as your separate property.
How is an Inheritance Handled with Divorce in Virginia?
The analysis related to your inheritance is straightforward if you keep your inherited property isolated from other assets. Unfortunately, issues related to inheritances are rarely that straightforward.
In our experience, individuals who receive inheritances frequently use the inheritances for big ticket purchases or mix inherited funds with other marital assets. This does not mean that all is lost, but it does mean that more legwork will need to be done to preserve your claim to the inherited funds.
How to Preserve an Inheritance in a Divorce?
The keys to preserving an inheritance as separate property are providing evidence that you received an inheritance and tracing the inheritance from its receipt to its current location.
The Following are Three Common Scenarios that We Encounter:
Use Inherited Assets to Purchase a New Asset
If the inherited assets are the only source of funds used to purchase the new asset, the newly acquired asset will be classified as separate property. The critical fact in determining how the new asset will be classified (marital, separate, or hybrid) is the classification of the source of funds used to purchase it.
It is important to save all of the documents that show the receipt of the inheritance, and the transition from inherited funds to the purchase of the new asset.
Use Inherited Assets to Pay for Part of a New Asset
If you use inherited assets to pay for part of the new asset and marital assets to pay for part as well, the newly acquired asset will be classified as hybrid property – part separate and part marital. In this scenario, the portion of the asset acquired with the inherited asset will remain separate property.
Again, it is extremely important that you retain the documents that follow or trace the inheritance from its initial receipt to its final location.
Deposit Inherited Funds into an Account that is Used to Pay Living Expenses:
In this scenario, the inherited funds were spent to pay living expenses and there is no asset purchased with the inheritance. Since the inherited funds no longer exist, they cannot be claimed as separate property.
Although you cannot trace the inherited funds that have been spent, the Court can take the fact that you contributed your inheritance to the marital estate when determining an equitable distribution of your assets and liabilities or when determining an appropriate amount of spousal support.
What Happens When an Inheritance Increases in Value?
We often encounter clients who received an inheritance long ago that is now worth much more than the original bequest. If inherited assets increase in value, the increased value is separate property as well as long as marital property or personal efforts were not used to generate the increase in value.
Personal effort includes a variety of activities such as labor, inventiveness, physical or intellectual skill, and so forth. Even if personal efforts are applied, those efforts must be significant and result in substantial appreciation of the inherited asset to cause a portion to be considered marital property.
Burden of Proof for Inheritance as Separate Property in Virginia
If you are claiming an inheritance as your separate property, it is your burden of proving that it is your separate property. Claiming an inheritance as separate property becomes more challenging when the inherited assets have been mixed with marital assets. In order to retain the inheritance as separate property, you must be able to distinguish the inherited assets from the other assets.
For more information about inheritances and divorce, contact Cooper Ginsberg Gray at (703) 934-1480 or www.cgglawyers.com.