You inherit money from a parent. Years later, you file for a divorce. Is the inheritance still yours—or has the way you handled it made marital property subject to division?

Consider this fictional South Carolina couple.

During her 22-year marriage to Bob, Carol inherited $3 million. She spent $250,000 renovating their jointly owned home and another $250,000 on family expenses. She deposited the remaining $2.5 million into jointly titled investment account with Vanguard and did not touch the principle or interest.

Ten years later, they used $1 million from that account to purchase a mountain home titled solely to Carol. The remaining $1.5 million was transferred into a Fidelity investment account titlted in Carol’s sole name. Carol says she can document every transfer.

What is transmutation?

Under S.C. Code § 20-3-630(A)(1) and (3), inheritances and property acquired in exchange for inherited property are generally considered to be separate property, and not part of the marital estate. However, transmutation occurs when separate property becomes marital property through the spouses’ treatment of it.

In Pittman v. Pittman, 407 S.C. 141, 754 S.E.2d 501 (2014), the Supreme Court emphasized the need for objective evidence to establish that the nature of the challenged property has been transmuted, or changed, into marital property. Bob, as the spouse claiming transmutation, would need provide that evidence.

What would support Carol’s position?

Carol needs estate records and complete bank statements tracing the inheritance into the mountain home and investment funds. Evidence explaining why she used a portion of the inheritance that was placed into a joint investment account—and showing both spouses understood the remaining funds belonged separately to her—would strengthen her case.

In Sanders v. Sanders, Opinion No. 4925 (S.C. Ct. App. Dec. 21, 2011), the court explained that depositing inherited funds into a joint account does not automatically make them marital. And Johnson v. Johnson, 296 S.C. 289, 372 S.E.2d 107 (Ct. App. 1988), holds that using separate property to support a marriage, without additional evidence of intent, is insufficient.

What would support Bob’s position?

Bob would want evidence of joint control, marital deposits, repeated withdrawals, shared investment decisions, or statements describing the money as their joint investment fund. Who used and maintained the mountain home? Who paid its expenses?

In Sanders, repeated mixing of marital and inherited funds, family spending, and incomplete tracing supported transmutation. Carol’s ten-year joint account history therefore deserves careful examination.

All financial transactions require analysis: money already spent, improvements to the marital home, and assets still owned, routine expenses being paid, etc. Tracing proves where money originated; it does not necessarily prove it remained separate. Moving funds into Carol’s name would not, by itself, undo an earlier transmutation.

So the question remains:  Did Carol preserve her inheritance—or did their financial choices turn some or all of it into marital property?

What do you think?