As part of the prenuptial agreement, both partners are required to go through a process called “financial disclosure.” This process involves complete transparency of all financial information, including income, assets, debt, businesses, and potential inheritances. In regard to inheritances, it’s common to have questions about how to predict future inheritances, how to include trusts, and if it’s necessary to disclose inheritance at all. We’re here to provide clarity on all of these concerns and help you understand the importance of inheritance disclosure in your prenup. Keep reading to learn more about the disclosure of inheritances in your prenup.
Determining the inheritance value
The key is to ask the person you may receive money from (i.e., the “benefactor”). Approach your benefactor—be it your parents, grandparents, or another relative—to get an estimate of the inheritance amount. Literally asking, “Hey, Mom, what does my potential inheritance look like one day? I need this information for financial disclosure in my prenup.” We know this may be an uncomfortable conversation, but it is legally necessary. The goal is to get a truthful estimate from the person you may be inheriting from.
What is the consequence of not including the exact inheritance amount?
Let’s say you put $500,000 down on your financial disclosure form in your prenup for your inheritance (because that is what the current value is at the time of the prenup signing). Fast forward ten years, and you actually get $10 million (parents won the lottery, yay!). Then, just a year later, you end up getting divorced and need to enforce your prenup. What is the consequence of having such a big discrepancy between your financial disclosure and the actual receipt of the inheritance? Generally, as long as you include a clause in your prenup that encompasses any and all future potential inheritance amount, you should be covered, even if there ends up being a large discrepancy in inheritance amount from the time you filled out the financial disclosure to the time you actually receive it.
Precision in estimates
You don’t need to be spot on down to the penny when estimating your potential inheritance. That would be asking you to predict the future. Instead, courts are seeking a truthful estimate made at the time of the prenup execution, reflecting the current value. You’re not expected to predict the future; the goal is to inform your partner about your current and potential (truthful) financial standing.
For example, let’s say your parents currently have $500,000 in a fund for you to pass down one day. You should then write down that you expect to receive a $500,000 inheritance on your financial disclosure. It’s impossible to estimate when your parent will die, and even if you could, it would be impossible to know exactly what will happen to the $500,000 between now and then. It could grow tremendously because of the market or shrink based on personal needs. Again, the goal here is to provide this information to your partner so they can make informed decisions during the prenup process.
Can I leave out my inheritance from financial disclosure?
No! Omitting your inheritance from financial disclosure is risky. Failure to disclose a potential inheritance may jeopardize its protection in a divorce. (I.e., you could lose a portion of your inheritance to your future ex-spouse this way). Even more, deliberately lying or omitting certain financial information, such as an inheritance, may possibly render the entire prenup invalid based on improper financial disclosure.
Non-cash inheritances
If your inheritance isn’t cash but is instead something physical, such as a real estate property, artwork, or a vehicle, it must be included. It’s important to declare the fair market or assessed value of the property at the time of prenup signing, providing a reasonable and truthful estimate. For instance, if you are planning to receive your parents’ house one day, get a fair market value assessment of the home at the time of the prenup execution.
Shared inheritance with siblings
If your inheritance involves sharing with siblings, specify your share accurately in your financial disclosure form. For instance, if you expect a $1,000,000 home to be passed down to you and your one other sibling equally, estimate its value during the prenup execution and indicate your 50% share. Remember, only include what you’re set to actually receive to ensure accurate disclosure. In other words, you should not include in your financial disclosure form that you will receive a $1M home, as you only own 50% of it since you are sharing it with your sibling.
Vested trust beneficiary vs. contingent trust beneficiary
Are you the beneficiary of a trust? How you list your inheritance, if in trust format, may vary based on whether you are a “vested trust beneficiary” or a “contingent trust beneficiary.” A vested trust beneficiary enjoys an immediate, irrevocable right to the trust assets, having fulfilled all conditions outlined in the trust document. This provides the beneficiary with a secure and concrete claim to their inheritance. On the other hand, contingent trust beneficiaries have rights contingent upon future events, such as the death of a primary beneficiary or reaching a specified age. Until these conditions are met, their entitlement remains uncertain, introducing an element of unpredictability into their potential inheritance. In either scenario, you should list it in your prenup financial disclosure form. While the contingent trust beneficiary may not receive anything in the future, there is a good chance that they will, so it is crucial to include it.
Foreign inheritances
If you have family or friends in other countries, you may be expecting a foreign inheritance one day. Maybe you will be given a house in Italy or a $100,000 equivalent in British pounds. It is also advisable to include any foreign inheritances on your prenup financial disclosure, too. Again, it boils down to one thing: financial disclosure is about financial transparency with your partner so they can make informed decisions.
Now, do you need to write out foreign inheritances in USD or foreign currency? Best practice is typically to include both the USD equivalent and the value in the foreign currency. However, in many states, there is generally no strict and fixed guideline on what course of action to take in this situation. If you have a question about foreign assets and how to write them into your financial disclosure, we always recommend speaking with an attorney in your state. You can book attorney services in select states directly through the HelloPrenup platform!
Commingling inheritance
It’s extremely important to understand commingling and how it could potentially affect your inheritance, even with a prenup. For instance, if you classify inheritance as separate property in your prenup and later receive an inheritance and deposit (a.k.a., commingle) a portion of the money into a joint marital account, the court will likely deem the deposited money as community/marital property.
To put it into perspective, let’s say you inherit $100,000, and you take $50,000 of it and put it towards your community/marital property mortgage. Simply taking part of your separate property (i.e., inheritance) and putting it towards a marital asset (i.e., mortgage), the court will likely find the funds to be “commingled” and, therefore, community property, subject to division.
It generally does not matter how “small” the commingling was; the court is likely to classify the commingled assets as community/marital property. There is always the possibility for the beneficiary spouse (i.e., the person who received the inheritance) to raise the argument and try to prove their intentions were not to commingle the money, but the likelihood of the court finding in their favor is generally very slim. The bottom line? If you want your inheritance to stay separate, you should make sure it is marked as separate property in your prenup and keep it separate from marital assets/funds. We always want to stay black and white, never walk in the grey.
The bottom line on inheritance disclosure in your prenup
Navigating inheritance disclosure in your prenup is tricky since it is like trying to hit a moving target. It can be nearly impossible to pinpoint the exact dollar amount that you will receive one day in the (hopefully far away) future. Nonetheless, inheritance disclosure is incredibly important for protecting your inheritance and your prenup, too! It shows a court that you, in good faith, were trying to disclose all known assets, including a potential future inheritance, even if it wasn’t the exact number. Not only that, but it covers you should you ever receive a very large inheritance–your future spouse can’t one day claim they weren’t properly informed in the prenup process.
Chelsie Keller is an accomplished attorney with broad experience in Estate Planning, Civil and Criminal Litigation.
Chelsie is very passionate about helping couples and families navigate the waters of life’s most important issues. She provides a confident, compassionate, and steady hand, helping guide clients throughout every step of the planning process, whether it’s estate planning or embarking on a new marital journey.
Chelsie’s goal at the end of the day is for her client’s to walk away feeling comfortable and confident with their decision.
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