Business Succession, Estate Planning, Legacy, Probate, Real Estate, Trusts, Uncategorized, Wealth, Wills

Child Gets Divorced? Half Their Inheritance Goes to the Ex Unless…

Life happens.

More specifically, divorces happen. And a lot more frequently than usually liked.

A common problem I see others run into is that Mom and Dad have passed away. They gave everything to their children in equal shares.

Then one of the children gets divorced, and the now-ex-spouse gets half of Mom and Dad’s bequest to the child.

When talking with parents, that’s usually a situation the parents want to avoid.

But how do you avoid it?

Well, under Texas law, the moment a testator (creator of a will) dies, the beneficiaries are entitled to the property described in the bequests of the will.

This also means that the bequests belong only to the beneficiary. This excludes the beneficiary’s spouse.

So how does the soon-to-be ex-spouse get half of Mom and Dad’s bequest to their child? Well, there’s a little thing called “commingling.”

Texas is a community property state. This means that, generally speaking, when a couple gets divorced, any property considered “community property” is split equitably between the spouses regardless of who paid for it or accumulated the asset.

The only way to keep all of an asset you specifically want in a divorce is make sure the asset is considered “separate property.”

A bequest from a parent to a child is automatically the child’s separate property, BUT if that child mixes that separate property with community property, there is an assumption that all of the assets mixed together are community property.

In other words, if a child mixes any asset they receive from their deceased parents with property the child owns with their spouse, the asset from the parents is most likely going to get split up in the child’s divorce.

For example, Mom passed away in 2019. Dad passed away last week. Dad gave John $10,000 in cash under the will. This $10,000 is John’s and John’s only. His soon-to-be-ex-wife has no claim to it, even if they were to get divorced tomorrow.

But if John transfers that $10,000 to his joint bank account, then POOF! The $10,000 is very likely to get split up in a divorce.

How does John (and anyone else) avoid this situation?

Strictly, and ferociously keep any property received from a bequest separate from all other property.

In other words, there should be a completely separate bank account to accept cash from the deceased parents. This bank account should only be in the child’s name and no one else. The account should be titled “John’s separate bank account” (or something to that effect). The family house John got from his parents should only be in his name, and John should only pay the mortgage with money from his separate bank account. And so forth.

If there is any hint of the child mixing his inheritance with his joint accounts with his spouse, then the spouse can claim that inheritance in the case of a divorce!

My suggestion is to work with an attorney and a CPA to ensure that the inheritance and the income derived from the inheritance’s assets remain separate and protected from a divorce.

And all of this advice is for someone receiving assets under a will.

But a trust is completely different.

Under a trust, the parents could simply put their assets in the trust and write the trust to avoid this whole divorce dilemma by only giving gifts to the child or maintain the child’s well-being without actually giving anything to the child directly. This prevents the divorce fiasco entirely and is quite easy to do.

Moral of the story: trusts are a magical device that can prevent the catastrophe outlined throughout this whole scenario… at least way better than a will can.