The Moneyist: ‘We went through all of my 401(k) investments’: I lost my job, then my home. Do I have any claim to my wife’s $200,000 inheritance?

Dear Quentin,

My wife and I have been married for over 30 years. Throughout the years, we relied mainly on my income. My wife worked occasionally, but mainly raised the children. We started to struggle financially when I was laid off. We went through all of my 401(k) investments.

I lost my home through a short sale because of the difficulty of keeping up with the expenses. I asked my wife to help by getting a job, but that did not happen. Now we are finally at a comfortable place, renting a home, and my wife is finally working.

My question: Do I have the legal right to an equal share of her $200,000 inheritance when she gets it, given I used all of my retirement funds to get us through those hard years?

Divorcing in Ohio

Related: My husband added my mother-in-law to the deed of our house 20 years ago. Now we’re getting divorced, and she wants one-third. Can I fight this?

“It’s a tough break that after 30 years of marriage and several years of homeownership, you are bidding adieu to the former and had to let go of the latter.”

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Dear Divorcing,

You have experienced a lot of financial loss, and you are about to go through what I hope is the last of it. It’s a tough break that after 30 years of marriage and several years of homeownership, you are bidding adieu to the former and had to let go of the latter. Given how difficult it is to get on the property ladder, you would have been better off living in a studio rental with your wife and renting out your house rather than letting it go. But we all do the best we can with the resources we have at the time, and you have finally reached a place of stability.

The short and long answer to your question: Ohio is an equitable-distribution state, meaning that marital assets are divided fairly, if not equally. Inheritance is regarded as separate property in Ohio, unless it is in some way used to benefit the marital assets — that is, commingled. For instance, if it were used to renovate your home or it was deposited in a joint bank account, it would cease to be separate property in a process called transmutation. This can easily happen: One letter writer used $142,000 from a $246,000 inheritance to pay off her mortgage.

For anyone else out there with an inheritance and a divorce pending: “Do not use inheritance money for regular spending, then replenish the account balance,” according to Manning & Clair Attorneys At Law, a law firm in Willoughby, Ohio. “This can be problematic for a separate-property claim. That is because inheritance money must be ‘traceable’ [or identifiable] to prove to a court that it is separate property. … You must be able to prove the inheritance, or asset purchased with the inheritance, maintained its separate nature from the rest of the marital assets.”

The final and, perhaps, bitter irony of your own situation is that you would, in all likelihood, have had to give up 50% of your property if you still owned it at the time of your divorce, assuming it was purchased during your marriage. Unless you had a prenuptial agreement before you got married, you may have to factor in alimony payments given that you have typically been the breadwinner in the relationship, in addition to other legal costs. The sooner you get divorced, the sooner you can start rebuilding your wealth, and saving once more for retirement.

Obviously, withdrawing money from your 401(k) comes with penalties and should always be seen as a last resort. But you’re not the only one who has had their hand forced in such a way: 37% of workers have taken a loan, early withdrawal or hardship withdrawal from their 401(k) or similar retirement plan, according to a report released earlier this year by the nonprofit Transamerica Center for Retirement Studies in collaboration with Transamerica Institute. Among those workers, 21% took an early and/or hardship withdrawal.

Good luck with the next chapter.