Be Careful Where You Deposit Your Inheritance

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Hi, this is Linda Rogers from Planning Within Reach.

Many of you will receive a cash gift or inheritance at some point in your life. It may be small, but it also may be substantial. Where you end up putting that money can have big ramifications. This is what you need to know.

An inheritance or gift is your separate property.

If you take that money and end up putting it in a joint account, it's now a joint asset. Why does that matter Well, it may not matter, but if you end up getting divorced, that's a big deal.

During the divorce process, you list your joint assets and debts and you split them in half. So if you took that separate property and put it into a joint account, you are now splitting half of your inheritance with your ex-spouse. So what you want to do is keep it in a separate account in your name only.

If you have already put it into a joint account and you end up getting divorced, there are ways that you can try and determine which portion of that account was your separate property. It is going to take a lot of time and it is going to be an expensive process because there were likely interest and dividends in the account and there were deposits and withdrawals. So you're looking at hiring a forensic accountant, which is not cheap and many people end up at some point saying it's not worth it. It is much cleaner to just go ahead and keep that separate.

Understandably, people don't want to think about divorce or their spouse may not be thrilled with the idea that they're keeping all this money in a separate account. I think that's why it's so helpful to have an objective, third-party opinion. It could be a financial planner, a tax professional, a lawyer. They are going to say the same thing, which is you want to keep good records and you want to keep your inheritance in a separate account.

That doesn't prevent you from taking some of your inheritance and maybe using it for a family vacation or for home improvements. Yes, you're changing the character of it. You're taking separate property money and you're using it for a joint expense, but you can make that decision along the way and it's completely different than taking your entire inheritance and changing its character all at once, which is what you're doing when you put it into a joint account.

So ask before you act, because this is one of those things that is really hard to undo once you've done it, so you just want to make sure you do it correctly.

My name is Linda Rogers, Owner of Planning Within Reach.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.