Divorce, inheritance, bankruptcy & business legal question.

LeeH · 02-13-2006, 03:02 PM

I've got a friend (yes, really it IS a friend) who owns a business that is failing, but still ongoing. Both husband and wife are listed as owners. She recently inherited $120K. The money has not been comingled with the family money. Even though they are more or less happily married, would a divorce protect the inheritance in a community property state?

pbs911 · pbs911's Garage

Money recieved through inheritance is the separate property of that spouse. However, it must be clearly distinguished from the marital assets. Have her place it in a separate bank account. Do not place it in a joint account. if any is used for family expenditures have the husband sign a statement stating he knows the money is not a gift to the community but is a debt that must be paid back. She will have the burden to show the money wasnot comingled.

What does the business have to do with anything?

bryanthompson · bryanthompson's Garage

I'm guessing the business is mentioned because it is a (possible) source of tension and her inheritence could be sunk in it. We went through that once... pretty much all of my dad's retirement straight in the crapper. They are still together, but it's easy to throw more money into a failing business.

greglepore · 02-13-2006, 05:03 PM

Probably, but only if as part of the distribution she rec'd no interest in the biz. The inheritance is hers in a divorce situation regardless, but if she remains a biz partner, it doesn't really matter.

LeeH · 02-13-2006, 05:21 PM

They aren't even contemplating divorce. Their business is failing so she's worried that the inheritance money will end up going to the business creditors. I was wondering if they were legally divorced if it would protect the money or part of it.

In other words, if they divorced and then he was the sole owner, could he alone declare bankruptcy sheltering the money.

schamp · 02-15-2006, 03:19 AM

What type of business, C corp, S corp, partnership, etc. How is she listed, president, vice president, ceo, cfo, etc. Has she ever signed loan papers as just herself, or as a company officer. In most states gift, devise, or inheritance is protected unless co-mingled. Now if she signed to repay a loan that when bad they could go after her individual assets. My .02 = .01 after adjustment for inflation.

pbs911 · pbs911's Garage

Quote:

Originally posted by schamp
What type of business, C corp, S corp, partnership, etc. How is she listed, president, vice president, ceo, cfo, etc. Has she ever signed loan papers as just herself, or as a company officer. In most states gift, devise, or inheritance is protected unless co-mingled. Now if she signed to repay a loan that when bad they could go after her individual assets. My .02 = .01 after adjustment for inflation.

Exactly, assuming hte inheritance is not comingled with the marital property, the wife's individual liability (and ability to attach her individual property) will be connected to the legal status of the business.