Living in Arizona since relocating from Illinois eight years ago, my husband and I now reside in a state governed by community property laws. I am preparing to receive a sum from a late relative’s trust, and we are exploring ways to invest the funds to boost our retirement savings. I fully intend to remain married; still, I want to protect my rights should circumstances change unexpectedly.
In this state, property acquired before marriage remains solely in one’s name. Similarly, any gifts or inheritances received during the marital union are treated as separate. Keeping these funds apart is a sound measure—many refer to such money as “FU money,” meaning money that is not merged with shared assets. It is important to retain these funds exclusively in your name and avoid mixing them with your husband’s finances, particularly in retirement accounts like IRAs or 401(k)s.
One option for safeguarding the inheritance is to open an independent brokerage account held solely in your name. For example, if you feel comfortable with the risks associated with U.S. stocks, you might allocate a portion of the money into an index fund or an exchange-traded fund that follows a broad stock index such as the S&P 500, or consider a total market fund similar to the one offered by Vanguard. Using a mix of ETFs helps you diversify your portfolio and reduce exposure to individual market fluctuations.
When it comes to retirement accounts, it is important to recognize that any contributions or investment gains accumulated during the marriage are regarded as jointly owned. For instance, if a 401(k) began with a $10,000 balance before the union and grew to $50,000 as a result of additional contributions and market gains, the $40,000 increase becomes shared property. This example clearly illustrates that funds generated from marital contributions turn into assets accessible to both spouses, regardless of whether they initially started as separate.
Taking a cautious and planned approach helps protect your individual wealth and meets your financial objectives, in line with Arizona’s community property guidelines. By keeping the windfall distinct from joint accounts and investing it thoughtfully, you set a strong foundation for supplementing your retirement funding while preserving the integrity of assets acquired before the marriage.