Hands Off My Inheritance

QUESTION: My husband and I are having a dispute about how best to use a large inheritance that I received from my mom. I feel that it is my decision to determine how the proceeds are allocated. He feels that I should not be able to make a unilateral decision on this. Knowing my mom, she would have wanted me to be the one making this decision. What does SmartMoney.com think about this?
— Anonymous

ANSWER:ANSWER: Many couples fight about money. And, as any psychologist will point out, lots of times arguments about money are really arguments about much broader issues in the marriage. Now, here at SmartMoney.com, we think we're pretty good at dispersing financial advice. Relationship advice, on the other hand, is not our forte.

Below we'll review a spouse's legal rights when it comes to an inheritance. But couples who find themselves at odds over financial issues may want to speak to a marriage counselor as well. "Money and emotions are so intertwined that any change in a financial situation often has nothing to do with money, but is about a balance of power in the relationship," says Ginita Wall, certified financial planner (CFP) and co-founder of the Women's Institute for Financial Education, or wife.org.

Legally speaking, however, as long as the inheritance is kept in a separate account and is not commingled with any jointly-owned assets, the spouse inheriting the money has full legal rights over it, says Katherine Stoner, a family-law attorney in Pacific Grove, Calif.

"Just about every state says that if you get an inheritance, it's your separate property," she says. That said, to understand the specifics of your state it's important to speak with an estate-planning attorney before you do anything, Stoner recommends.

Ideally, the spouse receiving the inheritance would set up a separate account for it, says Marilyn Bergen, a fee-only CFP in Portland, Ore. "Nothing else should go in this account, not even a check for $10," she says. The reason: Should there be a dispute over finances in the event of a divorce, having to separate the inheritance — and any income it may have earned in the meantime — from any joint marital assets will be more complicated.

Receiving a large inheritance, meanwhile, is one of those situations when financial advisers often recommend that spouses sign a postnuptial agreement. What is that? It works just like a prenuptial agreement, only it's signed after tying the knot.

A prenup, basically, specifies the assets each spouse brings into the marriage and what would go to whom in the event of a divorce. (For more on prenups, read our story.) A postnup, on the other hand, tends to cover specific assets or issues, such as an inheritance received during the marriage, says Wall.

Signing a postnup might sound awkward, but financial planners say that it can be positive in the sense that it forces a couple to discuss money issues — and usually in front of a qualified third party such as an estate-planning attorney. "What's nice about a postnuptial agreement is the negotiation that comes with it, which means a couple is communicating," Wall says.

Signing a postnup is best done with a different lawyer representing each spouse, explains family-law attorney Stoner. "There's a presumption often used in the law that people who are married have such a close confidential relationship that any transaction between the two of them that benefits just one spouse is looked at suspiciously," she says. "To make sure you have an enforceable agreement, each spouse should have an attorney representing them."

As we mentioned above, in addition to lawyers, couples struggling in situations like this may want to speak with a marriage counselor as well. After all, the idea here is the marriage should remain intact. And the best way to ensure that may be to understand how financial issues are affecting more than just bank accounts.