Receiving an inheritance can be both a blessing and a source of concern, especially if your spouse is dealing with creditor issues. If you’ve recently inherited money or property in North Carolina, you may be wondering whether your spouse’s creditors can reach those assets.
The good news is that North Carolina law generally offers protection for inherited assets—but that protection isn’t absolute.
In North Carolina, inheritance is typically considered separate property, similar to how it’s treated in divorce cases. Whether you received an inheritance before your marriage or during it, North Carolina law generally considers inherited property to be separate property. This distinction is crucial because it creates a legal barrier that can help shield your inheritance from your spouse’s creditors.
Separate property includes assets that:
This separation provides a foundation for protecting your inheritance, but maintaining this protection requires careful handling of the assets.
While inheritance starts as separate property, certain actions can compromise its protected status and potentially expose it to your spouse’s creditors.
The biggest risk to your inheritance is commingling—mixing your separate property with marital property.
Examples of commingling include:
Once commingled, your inheritance becomes much harder to distinguish from marital property, potentially making it accessible to your spouse’s creditors.
Taking proactive steps to maintain the separate status of your inheritance is essential for preserving its protection from creditors.
Do not mix inherited funds with marital accounts. Open a separate bank account in your name only. Keep careful records of where the inheritance came from and how it is used.
If you own property or investments from your inheritance, make sure they remain titled in your name alone, not jointly with your spouse.
Maintain complete records of:
These documents serve as evidence of the separate nature of your inheritance if creditors ever attempt to claim it.
If you want to add a layer of legal protection, establishing a trust is one of the most effective ways to shield inherited wealth. A properly structured trust can prevent assets from being considered divisible in court.
Different trusts offer varying levels of protection for your inheritance:
A revocable trust allows you to retain control over your assets during your lifetime. While it does not offer the same level of asset protection as an irrevocable trust, it still helps prevent commingling by keeping inherited assets titled in the name of the trust, not you personally.
An irrevocable trust offers stronger protection, as assets placed in the trust are no longer considered part of your personal estate. Because you cannot change or dissolve the trust unilaterally, courts are less likely to consider the assets during challenges by creditors.
North Carolina law recognizes spendthrift provisions in trusts, which can provide additional protection. According to N.C. General Statutes Chapter 36C, Article 5, these provisions can prevent creditors from reaching assets held in trust.
Several North Carolina laws can help protect your inheritance from creditors:
Under N.C. General Statutes § 1C-1601, certain property is exempt from creditor claims. While this doesn’t specifically mention inheritance, it provides exemptions that might apply to inherited assets, including:
If you inherit real estate and subsequently add your spouse to the title as tenants by the entirety, this can actually provide a unique protection under N.C. General Statutes § 41-56 against your spouse’s individual creditors.
Tenancy by the entirety is a form of ownership available only to married couples in North Carolina that treats property as owned by the marriage rather than by either individual spouse. This means that creditors of just one spouse generally cannot force the sale of property held as tenants by the entirety.
However, be cautious with this approach. By adding your spouse to the title, you are effectively converting separate property to marital property, which could have implications in the event of divorce.
Let’s say you inherited $200,000 from a parent and deposited it into your joint checking account. Over the years, the money was used for family vacations, home improvements, and school tuition. During a creditor action against your spouse, the creditor claims half of what remains. Can they succeed?
It depends, but the more the money was treated as shared marital wealth, the stronger the creditor’s claim becomes.
Now imagine instead that you placed the inheritance in a separate trust, kept it titled in your name, and never used it for joint expenses. Your chances of protecting that inheritance are significantly higher.
The key to protecting your inheritance from your spouse’s creditors is advance planning. Consider these proactive steps:
If your spouse already has creditor issues or judgments against them, transferring assets or creating trusts might be scrutinized as fraudulent transfers intended to hinder creditors.
At Cary Estate Planning, we help individuals and families throughout North Carolina design strategies to keep inheritance protected—before, during, and after marriage.
Whether you are newly engaged, planning for the future, or already facing creditor concerns, we can help you:
Contact us today for a consultation. Together, we will create a personalized plan that honors your legacy and gives you peace of mind—no matter what the future holds.
If your inheritance has been properly kept separate and was received more than 180 days before your spouse’s bankruptcy filing, it generally remains protected. However, inheritances received within 180 days after filing for bankruptcy may become part of the bankruptcy estate under 11 U.S.C. § 541(a)(5).
Yes, properly segregated inheritance can typically be protected from lawsuits against your spouse. However, if you’ve commingled the inheritance with marital assets or your name is also on the lawsuit, the protection may be compromised.
Inheritance received after incurring joint debt is still initially considered separate property. However, creditors for joint debts can potentially reach all assets owned by either spouse, including newly acquired separate property. To maximize protection, keep the inheritance completely separate from marital assets and consider using asset protection trusts specifically designed to shield assets from creditors while maintaining their separate character.
Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.
Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.