Dear Quentin,
I recognize that during a divorce, a spouse generally isn’t entitled to funds inherited by the other spouse unless those funds have been mixed into a joint account. My situation is that my wife inherited money after we married, but she made what I think is a poor choice: she placed it into her own account.
For approximately 20 years, without my knowledge, she deposited her earnings into the same account containing her inheritance. Now, she is on Social Security, and her benefits are also credited to this account each month.
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I’m still employed, and we have consistently filed joint tax returns. Unfortunately, no taxes are withheld from her Social Security payments, which has reduced my annual tax refund by about 60% compared to what it could be without including her Social Security income on our joint return.
If we were to divorce, would I be entitled to half of her separate account, considering that she has combined joint earnings with the inherited funds for two decades? Also, will I be entitled to half of her Social Security, as she would be entitled to half of mine once I start receiving it?
Husband in Texas
Dear Husband,
There is positive news — for your wife.
Your wife should take appropriate care of her inheritance, especially since it seems your marriage may not be in the best place and divorce is on the table. It seems she has done so, as you’ve noted the flow of money in and out of the accounts. While I understand your concerns, it’s essential to note that the inheritance isn’t a “golden goose.”
Funds transferred from a joint marital bank account into a separate account that contains your wife’s inheritance do not equal commingling. Texas is counted among the nine community-property states, which include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Washington, and Wisconsin.
Cash moved from a separate marital property account to a joint account is considered commingled. Separate marital property could include an inheritance, funds from certain personal injury settlements, pre-marital earnings, or assets clearly acquired from those sources.
According to the law firm Hailey-Petty, which has locations in San Antonio and Austin, Texas, there are other ways an inheritance might be considered commingled. “If inheritance funds are used to purchase or invest in property that is jointly titled or used for the benefit of both spouses, this could lead to it being deemed marital property.”
The law firm notes further: “If an inheritance is utilized to enhance marital property — such as funding a significant renovation of a jointly owned residence — that part of the inheritance may qualify as marital property. Additionally, some states have specific criteria where an inheritance could be regarded as marital property.”
Spousal benefits
One cannot receive Social Security spousal benefits until the spouse claims Social Security themselves. The benefit amount hinges on whether the spouse claimed at age 62, awaited full retirement age, or maximized their benefits by waiting until age 70 to file.
To clarify: If you choose spousal benefits of up to 50% of your wife’s Social Security, that won’t diminish her benefits. For instance, if you receive $1,500 and your wife earns $5,000, you could claim on her account and get $2,500, but not $4,000; rather, you’d receive the greater of the two benefits. The higher benefit recipient remains unaffected.
If you wish to access spousal benefits post-divorce, you must be at least 62 years old, unmarried, and have been married to your ex-wife for a minimum of 10 years. “You can apply for benefits on your former spouse’s record even if they haven’t retired, as long as you divorced at least two years before submitting your application,” according to the Social Security Administration.
Should you choose to stay married, you’re entitled to 50% of your wife’s benefit, assuming she is the higher-income earner. If you are the higher earner, the same applies to your wife. It’s a fair policy. Based on the information provided, it’s unclear who is the higher earner, making it difficult to ascertain who will benefit most.
To qualify for spousal benefits, “you must be 62 years or older or any age if you have a dependent child under 16 or with a disability entitled to benefits under your spouse’s record,” the SSA states. “Choosing to receive your spouse’s benefits before reaching full retirement age will result in a permanent reduction of your payment.”
In conclusion, your wife’s inheritance remains well-protected.
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