Many people wonder whether inheritances are considered income when child support and maintenance costs are calculated in a divorce proceeding.
As best as I can determine (not knowing the unique aspects of each case), the answer is generally this: the portion of the inheritance that is simply put in the bank and accrues interest is not considered income for the purpose of maintenance and child support is considered income.
Let’s look at some examples for clarity.
Example One: Are Legal Bills “Ordinary Expenses”?
It’s no secret that getting a divorce can be expensive, and, generally, each party is responsible for paying his/her fees. In one case I heard about, the husband inherited a bit of money right around the time he was getting divorced. He used about $50,000 of the inheritance to pay off his legal bills.
The wife’s attorney argued that legal bills are ordinary expenses and, therefore, should be considered as part of his income in calculating how much child support he should pay her monthly. I personally agree, but in this particular case, the judge did not include the inheritance as part of the husband’s annual income, and it was not considered when determining maintenance and child support.
Example Two: What if Inheritance Money Accrues Interest?
In another case, the wife inherited a very significant sum of money — we’re talking around 6 million dollars — during her marriage. She didn’t immediately need the money, so she invested it in a CD and over the course of several years, the money earned a substantial rate of return.
There is a case that sets a precedent for inheritance, saying that if inheritance money is put in the bank and sits undisturbed, it is not considered income. However, if the money accrues interest, the interest is considered income.
So, in this case, when the couple finally filed for divorce and began dividing assets, the 6 million dollars of the initial inheritance could not be touched. That went back to the wife. The nearly $250,000 in interest that had accumulated in the account was fair game, though; and the husband’s attorney was able to successfully argue that he had a claim on a portion of that interest.
A General Note on Inheritance Money
I always recommend that marrying couples sign a pre-nuptial agreement (or if you’re already married, get a post-nuptial agreement in place). I understand that most people don’t like to think about and plan for ultimately splitting up, which can make the process of agreeing on the pre- or post-nup a challenge, but in my experience, when one of those agreements is in place, there is much less strife when and if it does come time to divorce.
That said, if you and your spouse will not sign an agreement like this and you are likely to receive an inheritance that you wish to maintain as non-marital property, do some research on what it will take to ensure that the money is still considered solely yours in the case of a divorce. You can start with the basics HERE.
For more detailed information around your particular situation, call our office at 303-449-1873 to set up a free consultation.