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Can a prenuptial agreement protect inherited assets?

If a married couple wants to protect any inheritance either of them may have received from being equally distributed between both partners in the event of divorce, some planning may be required. While not always considered "romantic," thinking about a potential future divorce may save a couple headaches later.

Courts will look at what is marital property and what is separate during property division decisions. And, the assets will accordingly be equitably distributed between both partners. Married couples may thus wonder as to what their options are to protect their inheritance or assets such as an heirloom ring. One method that can be used to protect inherited assets is to sign a prenuptial agreement before getting married. Assuming they are drawn up correctly and with the input and advice of legal counsel, they can state that both partners in a marriage have agreed to forgo any inheritance or substantial gift that their spouse may receive prior to or during the course of their marriage.

Furthermore, it is advisable to preserve any documentation that clearly shows that an inheritance was only intended for a single person and not for the couple. A perfect example of such documentation is a gift-tax return since it allows the donor to specify specifically who the intended individual beneficiary is. However, even something as simple as a letter from the donor that states who the gift was given to, or a wedding card that was only addressed to one person can suffice. So keep any written documentation safe in a safe deposit box or with a trusted family member. It may never be needed but it's good to have it on hand if the need ever arises.

Another important point to keep in mind is not to co-mingle inherited funds or other assets that are not intended to be owned by both partners in a marriage. Ideally, they should be placed in a separate bank or investment account, or in a separate financial institution altogether. Using a trust can also help protect funds from becoming marital property. In most cases, people do not consider negotiating a prenuptial agreement prior to marriage. Thus, in the absence of such an agreement it is best to keep property titles such as that of a vacation house in only one name.

Source: Wall Street Journal, "How to Keep your Inheritance in a Divorce," Neil Parmar, November 9, 2014

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