For many parents and grandparents, a key goal of their financial and estate planning centers on being able to pass along wealth to their children and grandchildren. According to CNN, individuals who make up the baby boomer generation are expected to inherit a whopping $8.4 trillion dollars and a significant percentage of boomers indicate that they also intend to pass along wealth to their own heirs. For an individual who inherits wealth, it’s important to understand how inherited assets are treated in a divorce.

Divorce signals many changes in an individual’s life including those related to personal wealth and financial stability. For individuals who have inherited assets from a parent, grandparent or other family member; such assets may or may not be considered fair game in a divorce settlement.

Illinois is among those states that aim to divide property in divorces based upon the principle of equitable distribution. In essence, under equitable distribution, a judge will divide a married couple’s assets based upon what he or she believes to be fair. It’s important to note, that fair does not necessarily mean equal and a judge is likely to take numerous factors into consideration including the length of a marriage and each spouse’s contributions during a marriage, when making decisions related to the division and distribution of assets.

When it comes to how inherited assets are handled in divorce, much depends on how such assets are held and used. In general, if inherited assets are distributed into a joint account, they are automatically considered to be marital assets and therefore subject to division and distribution in a divorce. Additionally, if inherited assets are used for a home improvement project or to purchase property that is then owned by and for the benefit of both spouses, again, those assets are subject to equitable distribution.

In short, individuals who wish to protect inherited assets from a possible future divorce would be wise to keep those assets in a separate account and solely in one’s own name. Additionally, in cases where an individual inherits assets prior to marriage, it’s wise to include mention of such in a prenuptial agreement.

Source: FindLaw.com, “Divorce Property Division FAQ,” March 16, 2016