Do you want your beneficiary’s cheating spouse to receive half the inheritance you leave to your beneficiary?
Although every state initially treats inheritance as the beneficiary’s separate property, in many cases, failing to plan appropriately will subject half of your beneficiary’s remaining inheritance to their future ex-spouse should they get divorced after they receive the inheritance. This is for two main reasons. First, although an inheritance is separate property, unless the beneficiary is extremely careful and diligent, the inheritance will be converted to joint property. In a community property state like Arizona, this often occurs when the beneficiary deposits inherited money into a joint account. Even if the beneficiary wants to keep the inheritance separate, it is not always easy to do. Problems can occur when the separate property earns income because a married beneficiary usually files a joint return and pays income taxes out of a joint account. Second, some states actually allow the judge to award a one spouse’s separate property to the other spouse for equitable reasons during a divorce.
Unfortunately, with today’s high divorce rates, this can be a very valuable and important protection, even if your beneficiary is a young child. Once your young child eventually gets married, the inheritance is at risk if he or she gets divorced.