Wills and separate property: how to protect your assets in inheritance

When you make a will, it is not only about who inherits what. For many, an equally important question is: how do I ensure that the inheritance stays with the right person and does not end up with a former spouse? This is where separate property plays a central role.

This guide explains the connection between a will and separate property, and what you should consider if you want to protect an inheritance from, for example, division on divorce.

Note: Inheritance and separate property are complex legal topics that depend on your family situation, your financial circumstances and your wishes. This guide is for information and does not constitute legal advice. Contact a lawyer or notary when making a will with separate-property clauses.

What is separate property?

Separate property means that assets or part of assets are not included in the division on a possible divorce. Unlike divisible property (community property), which is divided equally on divorce, separate property stays with the person it belongs to.

Separate property can arise in two ways:

1. Marriage settlement: Spouses agree by a registered marriage settlement that particular assets are one spouse's separate property
2. A separate-property clause in a will: A testator can provide that the inheritance a beneficiary receives is to be the beneficiary's separate property, so it is not included in the division of property if the beneficiary later divorces

It is the second variant we focus on here.

When is a separate-property clause in a will relevant?

A separate-property clause in your will is relevant if:

• You are worried that a beneficiary (for example your child) is in an unstable marriage
• You want to ensure that an inheritance in the family stays in the family
• You do not know your beneficiaries' future spouses
• You want to avoid the inheritance becoming part of a future division of property

A typical wording is: "The inheritance that [the beneficiary's name] receives on my death is to be their full separate property."

Types of separate property

There are several variants of separate property that can be specified in a will:

Full separate property

The inheritance is never included in the division, neither on divorce nor on death. It remains the beneficiary's own, whatever happens to the marriage.

Divorce separate property

The inheritance is separate property on divorce but is included as divisible property if the beneficiary dies. It is typically used when the giver wants to protect against divorce but accepts that the inheritance is divided with the beneficiary's spouse on death.

Combination separate property

Combination separate property is a widely used construction that combines the two above: as long as both spouses live, the inheritance is divorce separate property, and on the beneficiary's death it becomes full separate property for the surviving spouse. In this way, the survivor is protected both against division on divorce and against the deceased's heirs being able to claim that part of the assets.

Fractional separate property

Only a specific fraction of the inheritance is separate property, for example: "Half of the amount that [the beneficiary] receives is separate property." It is used when you want to share the risk.

What does the separate-property clause cover?

A separate-property clause in a will covers the inheritance that is received from the testator. It does not as a rule cover:

• The return on the inheritance (interest and gains), unless expressly stated
• Other assets the beneficiary already owns
• Assets the beneficiary later inherits from others

If you want to ensure that the return on the inheritance is also separate property, it must appear expressly in the will.

The separate-property clause and the beneficiary's choice

A beneficiary can always choose to decline an inheritance. What the beneficiary cannot do is decline the separate-property clause itself and receive the inheritance as divisible property. The clause is a condition of receiving the inheritance, and the testator's wish is respected.

Once the beneficiary has received the inheritance, the beneficiary and their spouse can, however, in theory by a marriage settlement convert the separate property into divisible property, if the testator has not provided that it cannot be changed. It requires an active decision by the beneficiary.

Will vs. marriage settlement: who decides?

It is important to understand the difference:

• The will's separate-property clause determines the terms of what you pass on as the testator
• The marriage settlement's separate property determines what the spouses themselves agree about their own assets

As a testator, you can insert a separate-property clause in your will without waiting for the beneficiary to make a marriage settlement. It is your choice.

Formal requirements for a will with a separate-property clause

A will with a separate-property clause is only valid if it meets the formal requirements of the Inheritance Act:

1. Notarial will: made before the notary at the district court, with the highest security against challenge and with automatic registration
2. Witness will: signed in the simultaneous presence of two witnesses, who may not themselves be beneficiaries

A will with separate-property clauses should preferably be made as a notarial will, as it gives the greatest security. Purely handwritten wills (holographic wills) are as a rule not valid in Denmark.

Tax and estate duty

Separate property does not change the estate duty (inheritance duty) itself, which is calculated in the usual way:

• To a spouse: 0%
• To children and other close heirs: 15% of the inheritance above the duty-free allowance
• To more distant heirs (outside the close circle): effectively about 36.25%, as in addition to the 15% a supplementary estate duty of 25% is also paid

The separate-property clause matters for whether the inheritance is included in a possible future division of property, but not for the duty when the inheritance falls.

Conclusion

A separate-property clause in your will is an effective tool if you want to ensure that an inheritance stays with whoever you want and is not divided with a beneficiary's spouse on a divorce. Choose the right type of separate property (full, divorce, combination or fractional) based on what you want to achieve, word the clause precisely, and preferably make the will as a notarial will. With larger assets or blended families, you should have it reviewed by a lawyer specialising in inheritance law.

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The content of this article is for guidance only and does not constitute legal advice. Consult a lawyer specialising in inheritance law for advice on your specific situation.