Inheritance and Divorce – Marital Property or Separate?

If you inherit property during a marriage, is the inheritance considered marital property or separate property at the time of divorce? It depends.

            Tennessee is a dual property state, meaning the law recognizes both marital property and separate property. Whether inherited property is marital property or separate property depends greatly on what you do with the money once it has been inherited. Initially, the inheritance is considered separate property.  T.C.A. § 36-4-121 includes “property acquired by gift, bequest, devise or descent” in the definition of separate property.[1]  However, if the inherited property is later “inextricably mingled with marital property or with the separate property of the other spouse”, the inheritance could become marital property though commingling.[2]  In determining whether otherwise separate property has been converted to marital property, courts look to the intent and actions of the parties, and the determination is dependent upon the facts of an individual case.[3]

            For example, in May v. May, Husband inherited almost $700,000 during the parties’ marriage, which was deposited in the parties’ joint bank account and later moved to a separate bank account with only Husband’s name on the account.[4] Husband also admitted to using some of his inheritance money to purchase vehicles for himself, one of the parties’ daughters, and his wife, and stated that it would be financial chaos to try and trace his inheritance funds and separate the inheritance from other marital funds.[5]  Because the inheritance could not be deciphered from marital funds, the Court ultimately found that the inheritance was marital property.

            Inherited property can also become marital property through transmutation if the property is “treated in such a way as to give evidence of an intention that it become marital property.”[6] For example, in Cooke v. Cooke, Husband had inherited a large sum of money from his uncle.[7] Husband later used $110,000 of the inheritance to pay toward the parties’ mortgage on the marital residence.[8] The Court found that Husband investing the inherited funds into the jointly owed marital property caused the inherited funds to become marital property through transmutation because Husband treated the funds in such a way to show the intention of the inheritance becoming marital property.[9] 

            In conclusion, if you wish to keep your inheritance as separate property instead of marital property, it is best to keep the inheritance in a separate account only titled in your name.  Additionally, to avoid the risk of commingling or transmutation, the inheritance should not be used to improve any marital property, such as the marital residence or land.

[1] Tenn. Code Ann. § 36-4-121(b)(4)(D).

[2] Langschmidt v. Langschmidt, 81 S.W.3d 741, 747 (Tenn. 2002).

[3] Ferguson v. Ferguson, No. M2005-02468-COA-R3-CV No. 2008 S.W.2d 425945 (Tenn. Ct. App. Feb. 13, 2008).

[4] May v. May, No. E2010-01026-COA-R3-CV, 2011 WL 5925076 *4–5 (Tenn. Ct. App Aug. 15, 2011).

[5] Id. at 5–6.

[6] Langschmidt v. Langschmidt, 81 S.W.3d 741, 747 (Tenn. 2002).

[7] Cooke v. Cooke, No. E2022-00049-COA-R3-CV, 2022 WL 1792651 (Tenn. Ct. App. Dec. 27, 2022).

[8] Id. at 8.

[9] Id. at 35.