California law recognizes community property. This means that almost any assets you acquire during the marriage is jointly owned by your spouse. Community property can also include assets you owned before the marriage that were subsequently commingled with marital assets. This system, of course, can create complications and hard-fought battles in divorce.
One type of asset that can be particularly tricky in divorce is an inheritance.
Are inheritances considered community property?
Inheritances are considered to be individually owned and separate property, meaning that you can keep them out of the property division process in your divorce. However, there are exceptions. For example, if you commingle your inheritance with community property or you use your inheritance to benefit your marriage or the marital home, then your inheritance may be deemed transformed into community property, thus subjecting it to property division.
But where is the line between keeping an inheritance separate and commingling or transforming it into community property? That can be a hard question to answer, but let’s look at some situations that may transform your inheritance:
- Depositing your inheritance into a marital account: If you deposit your inheritance into a jointly owned account, then it’s going to be hard, if not impossible, to tell where your inheritance ends and marital funds begin. That’s why in these instances your inheritance will likely be deemed sufficiently commingled to transform it into community property.
- Paying marital debts with your inheritance: Remember, to keep your inheritance separate, it truly must be kept away from marital activities. So, if you use your inheritance to pay marital expenses or agree to use the funds to support your marriage in some way, then you’re opening the door for those assets to be considered community property and thus be subjected to the property division process.
- Using your inheritance to purchase large marital assets: An inheritance can put you in a strong position to renovate your home, buy a new house, or purchase a family vehicle. As soon as you do so, though, the portion of your inheritance that you use to secure that marital assets will be considered transmuted into community property.
How can you protect your inheritance?
The best way is to keep it completely separate from your marital estate. Place inherited funds in a separate account with only your name on it, and refrain from using those assets to support the marriage. Keep detailed records of how you spend your inheritance, too, so that it’s easier to determine if any of those assets were used in a way that transformed them into community property. Refrain from paying off any jointly held debts, too.
This might leave you wondering what you can do with your inheritance. There are plenty of options out there. You just have to think through how you can use them to support yourself rather than your marriage. Or, alternatively, you can enter into a post-nuptial agreement that specifies how the inheritance will be treated in the event of divorce, regardless of how it’s used during your marriage.
Know how to protect your interests in your divorce
Divorce is a major financial transaction. If you’re not careful, you could lose out on a lot of money, thereby leaving yourself in a tough spot once your divorce is finalized. To prevent that from happening to you, ensure you understand California’s community property laws and how to develop a legal strategy that protects your interests.
