How To Protect Inheritance From Spouse's Bankruptcy

Protecting Your Inheritance During Your Spouse’s Bankruptcy

Protecting an inheritance during bankruptcy can be a complex legal maneuver especially when the person receiving the inheritance is not filing bankruptcy but their spouse is. Texas is a community property state, which means that spouses generally speaking do not have “separate” property during the marriage.  However, an inheritance might be considered separate outside and during bankruptcy under certain circumstances.

However, there are cases where your inheritance could be considered part of the bankruptcy estate if it is not handled property prior to your spouse filing bankruptcy.  Below are a few examples of how the inheritance of a non-filing spouse might be treated in bankruptcy.  Keep in mind that the treatment of an inheritance depends on many factors including your bankruptcy attorney’s experience and ability to effectively protect your rights.

Example #1 – Let’s say you received an inheritance of $60,000 and your spouse filed for bankruptcy a few weeks afterwards.  The inheritance would need to be disclosed in the bankruptcy filing and failure to include it in the bankruptcy filing could cause the bankruptcy case to be dismissed.

Example #2 – Let’s say you received that $60,000 inheritance and promptly spent it on expenses such as a mortgage payments, car payments and your kid’s college education. If your spouse filed for bankruptcy sometime after the money had all been spent that inheritance might not negatively impact your spouse bankruptcy; but the bankruptcy trustee will want to know how the money was spent. If the bankruptcy trustee’s investigation reveals that the inheritance was spent on frivolous things like a flat screen TV or a sport car, the bankruptcy case could be jeopardized.

Example #3 – Even if the inheritance of the non-filing spouse is considered separate during bankruptcy, if that inheritance money is comingled with the spouse’s assets, it could lose its separate status.  An example of that might include buying the filing spouse a sports car.  In that case the sports car could be considered part of the bankruptcy estate although it was purchased with inheritance money.