Divorce can have a significant impact on your financial future, especially when it comes to inherited assets. In Colorado, marital property is subject to equitable distribution, meaning assets acquired during the marriage are divided fairly — though not always equally. While inherited property is typically considered separate property, there are situations where it can become vulnerable in a divorce.
To safeguard your family’s inheritance, it’s important to understand Colorado’s property division laws and take proactive steps to protect your assets. Below are effective strategies that can help preserve your inheritance during a divorce.
Does Inherited Property Count as Marital Property in Colorado?
Under Colorado law, property acquired by one spouse before the marriage or through inheritance is considered separate property. This means that, in most cases, an inheritance belongs solely to the person who received it — even if it was obtained during the marriage.
However, inherited property may become subject to division if it is commingled with marital assets or if its value increases significantly due to the efforts of both spouses. For example:
- If you deposit inherited money into a joint bank account shared with your spouse, those funds may be treated as marital property.
- If you inherit a home but use marital funds to improve the property, the increase in value may be considered marital property.
- If your spouse actively contributes to managing or improving an inherited business, they may be entitled to a share of that growth.
Because inherited assets can become entangled with marital property, taking steps to keep them separate is essential.
Strategies to Protect Your Family’s Inheritance in Colorado
Whether you’ve already received an inheritance or expect to receive one in the future, there are several steps you can take to help protect those assets in the event of a divorce.
1. Establish a Trust
One of the most effective ways to protect inherited wealth is by creating a trust. A properly structured trust can help ensure that inherited funds, property, or investments remain separate from marital property. Trusts offer several layers of protection by:
- Placing legal ownership of the inheritance in the hands of a designated trustee.
- Allowing the grantor to outline specific conditions on how the funds are used or distributed.
- Preventing beneficiaries from accidentally commingling the inheritance with marital assets.
A revocable trust allows for flexibility in managing assets, while an irrevocable trust offers stronger protection but limits control over the funds. An estate planning attorney can help determine which type of trust best suits your needs.
2. Keep Inherited Funds in a Separate Account
To maintain the status of your inheritance as separate property, it’s critical to avoid mixing it with joint accounts. Opening a separate bank account solely for your inherited funds reduces the risk of commingling, which can complicate property division during divorce.
In addition to keeping inherited money in a separate account, consider:
- Maintaining detailed records that show the origin of the inheritance.
- Documenting all transactions to demonstrate that marital funds have not been added to the account.
By preserving clear financial boundaries, you strengthen your case for protecting those assets during divorce proceedings.
3. Create a Prenuptial or Postnuptial Agreement
A prenuptial agreement (signed before marriage) or a postnuptial agreement (signed after marriage) can clearly define how an inheritance will be treated in the event of divorce. These agreements can specify that certain assets — including future inheritances — will remain separate property.
For a prenuptial or postnuptial agreement to hold up in court, it must meet certain legal requirements:
- Both parties must sign the agreement voluntarily.
- Both parties must provide full financial disclosure at the time of signing.
- The agreement must be fair and reasonable under Colorado law.
Having a well-drafted agreement in place can provide peace of mind and ensure your family’s inheritance is protected.
4. Maintain Clear Documentation
Proper documentation is vital for proving that your inheritance should be classified as separate property. Important records to maintain include:
- Wills or trust documents outlining the inheritance.
- Bank statements showing the inheritance was deposited into a separate account.
- Receipts or financial records demonstrating that marital funds were not used to maintain or improve inherited property.
In some cases, expert testimony from financial analysts or forensic accountants may be required to trace inherited assets and confirm they remained separate.
5. Avoid Using Inherited Assets for Marital Expenses
One common mistake is using inherited funds for shared expenses, such as mortgage payments, home renovations, or family vacations. Doing so can blur the lines between separate and marital property, making it difficult to claim those funds as separate during divorce proceedings.
If you need to use inherited money for household expenses, consider documenting the transaction in writing to clarify your intent to keep the funds separate.
What to Do If Your Inheritance Is at Risk
If your inheritance has already been commingled with marital property or if your spouse is attempting to claim a portion of your inherited assets, taking swift action can help protect your rights. Steps to consider include:
- Consulting with an experienced family law attorney who can assess your situation and advise you on the best strategy.
- Gathering documentation that proves the original source of your inheritance.
- Working with financial experts who can trace and distinguish separate assets from marital funds.
Even if part of your inheritance has been commingled, a knowledgeable attorney may be able to demonstrate which portion should remain classified as separate property.
Contact Littman Family Law for Legal Support
Your family’s wealth is the result of years of hard work, careful planning, and dedication. Taking proactive steps to protect your inheritance can help ensure that these assets remain secure during divorce proceedings.
If you’re concerned about safeguarding your inheritance, contact us today for a consultation. At Littman Family Law, we are dedicated to helping individuals in Denver and throughout Colorado protect their financial future through strategic asset preservation planning.
