Navigating Inheritance Disclosure In Your Prenup

Jan 29, 2024 | Finances, Protecting Assets

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 regards 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 parent’s 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 

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 advisable also 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 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 

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!

You are writing your life story. Get on the same page with a prenup. For love that lasts a lifetime, preparation is key. Safeguard your shared tomorrows, starting today.
All content provided on this blog is for informational purposes only. HelloPrenup, Inc. (“HelloPrenup”) makes no representations as to the accuracy or completeness of any information on this site. HelloPrenup will not be liable for any errors or omissions in this information nor for the availability of this information. These terms and conditions of use are subject to change at any time and without notice. HelloPrenup provides a platform for contract related self-help. The information provided by HelloPrenup along with the content on our website related to legal matters (“Information”) is provided for your private use and does not constitute legal advice. We do not review any information you provide us for legal accuracy or sufficiency, draw legal conclusions, provide opinions about your selection of forms, or apply the law to the facts of your situation. If you need legal advice for a specific problem, you should consult with a licensed attorney. Neither HelloPrenup nor any information provided by Hello Prenup is a substitute for legal advice from a qualified attorney licensed to practice in an appropriate jurisdiction.

0 Comments

Recent Posts

Will A Prenup Hold Up In Court?

A prenuptial agreement, often referred to as a prenup, is a legal contract signed by couples before marriage that outlines many different topics, such as how assets will be divided in the event of divorce or death and alimony. With the rise in popularity of prenups,...

Prenup vs. Postnup

Alright, folks, it's time to tackle one of the burning questions we get asked a lot here at HelloPrenup. Cue the drumroll... What's the difference between prenuptial agreements, a.k.a. "prenups," versus postnuptial agreements, a.k.a. "postnups"? Well, they're pretty...

Does Patrick Mahomes Have A Prenup?

Patrick Mahomes signed the biggest NFL contract in history in 2020–a whopping $450 million over 10 years. With his recent marriage to Brittany Matthews (now Brittany Mahomes), it’s understandable why there’s been so much interest in their prenup and whether or not...

Does J.Lo Have A Prenup?

Hold onto your hats, folks, because the hottest topic in Hollywood right now is none other than the rekindled romance between Jennifer Lopez and Ben Affleck. But amidst the whirlwind of their highly-publicized love affair, there's one question burning brighter than...

Ready to join the thousands of couples completing their prenup?