One of the most important matters that a couple will face while navigating a divorce is how to divide their property.
Every state is different in how it looks at property division during divorce. In California, we are considered a community property state. This means that any assets, property, or debt that a divorcing couple has acquired during their marriage must be divided equally. Property or debt acquired prior to marriage by either spouse will be considered separate property and retained by whichever spouse it belongs to.
But when one spouse has inherited a sum of money or property, how is this affected by California’s community property laws? If the inheritance happened during the marriage, does it need to be split equally with the other spouse?
How Does Community Property Work In California?
In California, community property includes any real property (real estate and houses), personal property, cash, wages, and intangible assets such as stocks and bonds that the couple acquired during their marriage. Likewise, community property will also include any debt the couple took on during their marriage, like mortgages and loans.
Unless it has been addressed before or during the marriage by a prenuptial or postnuptial agreement, all community property must be shared equally by both partners in a divorce under the California family code.
When Is Separate Property No Longer Separate?
In some instances, property that begins as separate property can become community property. For instance, one partner’s separate money becomes community property when it’s deposited into a joint bank account. If one spouse came into the marriage with their own home, but the other has helped pay the mortgage and make repairs on it during the marriage, it may be seen as community property when the couple divorces.
Exceptions to the Community Property Rules
Gifts and inheritances that are specifically directed to one spouse are an exception under community property rules. Unless the gift or inheritance names both spouses as heirs or beneficiaries, an inheritance is considered separate property in most cases. But in some situations, this can be less clear-cut.
The Commingling Of An Inheritance
An inheritance belongs to the individual heir as separate property and remains so unless it becomes commingled with community property. Like other separate property, money from an inheritance can easily become community property if it is deposited into a joint account. Once the other spouse has legal access to that money, it becomes community property.
Furthermore, money from an inheritance is no longer separate property if it is used to purchase community property. Once these funds are exchanged for property owned by both spouses, the inheritance money is longer considered separate property.
Transmuting An Inheritance
Unlike commingling, which mixes separate and community property, transmuting means changing the form of one into the other. At some point at a happier time in the marriage, one spouse may have decided to give the other access to and co-ownership of inherited funds. Once inheritance funds are shared, or inherited property is retitled to both partners, it becomes community property.
Can Anything Be Done About A Commingled or Transmuted Inheritance?
In some divorce cases, the court may consider inheritance that has been commingled or transmuted as separate property if it can be proven that the intention was never for it to be shared. While this demands a very high burden of proof, it may be done in the right circumstances with the right experienced legal counsel.
It’s easier to be proactive than reactive in these cases. When a spouse is or knows that they are going to be an heir to an inheritance, keeping it separate should be an important consideration in case of a future breakdown in the marriage. Keeping an inheritance as separate property can be done by
- Signing a prenuptial or postnuptial agreement detailing how any division of the inheritance will or won’t happen
- Keeping records that prove the inheritance was intended solely for that individual
- Keeping inheritance money in a separate bank account
- Not using inheritance money to buy community property
- Not using inheritance money to pay community debt
- Keeping the inheritance in a trust
Divorce can be an emotionally and financially stressful time, and property division is only one of the matters that couples must face during the process.
A California Divorce Attorney Can Help
For over 30 years, Bruce A. Mandel has helped individuals and their families navigate life’s ups and downs. If you have questions about property division in California and how it may affect you, call Bruce at (424) 250-9130 or contact him by filling out his online form to schedule a confidential consultation.
For more information about Bruce and the family law areas he focuses on, follow him on his Facebook page.
