Solving Complex Family Law Issues with Creative Strategies

Is My Inheritance Considered Community Property in California?

California is a community property state for marriage. Under this type of law, married couples become a “community” and any income or assets brought into the marriage once it’s begun belong to that community. Under this law, divorcing couples must equally divide all community property during their divorce. This includes real property like houses and land, and all other property and assets acquired by either spouse during the marriage such as cars, furniture, artwork, antiques, appliances, collectibles, bank accounts, investment accounts, and pensions. Even a bank account in only one spouse’s name becomes joint property during the marriage as does all debts regardless of which spouse’s name appears on the account.

There are only two exceptions to what is considered community property in California. Gifts given to one spouse, and one spouse’s inheritance, does not automatically become community property.

Why Is an Inheritance During Marriage Not Community Property

While California law considers each spouse entitled to an equal share of all assets acquired during a marriage, it also recognizes a family member’s right to leave an inheritance to their own loved one without it becoming subject to 50/50 division with a spouse during a San Francisco divorce. For this reason, based on the California inheritance law, an inheritance remains separate property of the individual whether they inherit before or after the marriage unless the inheritance is specifically left to both spouses or the family.

While in most cases an inheritance remains separate property there are some ways a spouse can make a claim for its division under specific circumstances.

What is the Commingling of Assets During Marriage?

When spouses enter into a marriage with their own assets, accounts, and properties, it’s easy to assume that those assets remain strictly theirs and they are entitled to keep them without having to split them or their value with their spouse. However, it’s very easy to accidentally allow commingling to occur, which causes a separate asset to become a part of the community asset pool of the marriage. For instance, when a spouse owns a business before the marriage but the other spouse begins working for the business after the marriage and makes improvements or helps increase its value, the asset becomes commingled. During a divorce in the above circumstances, the spouse who owns the business may face the surprise of learning that their spouse is entitled to half of its increased value during a divorce.

The most common commingling occurs with retirement accounts. A retirement in one spouse’s name before the marriage remains in their name, but the amount they contribute during the marriage is community property and subject to division even if they don’t add their spouse’s name to the account. The premise behind this idea is that one spouse wouldn’t be able to contribute as much to the account if the other spouse wasn’t earning an income—or caring for the children and home while the other spouse earned an income.

Just as commingling blurs the lines of ownership for separate assets belonging to a spouse before the marriage, the same often occurs to assets or property inherited by one spouse during the marriage.

When Can an Inheritance Become Community Property and Subject to Division?

Just as the division of assets and property is one of the most contentious issues in a divorce—second only to child custody—it’s also one of the most confusing issues for attorneys and courtroom judges to untangle. Though on the surface it seems it should be simple to determine that one spouse’s inheritance belongs only to that spouse, the matter of inheritance becomes more complex under the following circumstances:

  • When one spouse adds earnings to an account for funds inherited by a spouse
  • If a spouse inherits money and puts it into a joint account used by both spouses to deposit and withdraw funds
  • When one spouse inherits real estate property but the other spouse invests a significant amount of money and time in making improvements to the property
  • If one spouse inherits real estate property or a vehicle and adds the spouse’s name to the deed or title (considered transmutation of property)
  • When a spouse spends inherited money to buy community property such as a family home or vehicle

If you are considering a divorce in Irvine, California, speak to an experienced Orange County family law attorney before attempting to hide or disguise assets and find out what you can do to protect separate property, including an inheritance.

Tips For Keeping an Inheritance as Separate Property in California

If you receive an inheritance meant for you alone, you can protect the inheritance from the possibility of becoming joint property in a divorce by remembering the following:

  • Keep all documents relating to the inheritance
  • Open a separate account for the inheritance
  • Don’t use inherited funds to purchase a family home or vehicles
  • Don’t use inherited money to pay off joint debts
  • Avoid commingling an inheritance asset by allowing a spouse to invest money into the property

Failing to follow these preventative measures results in an inheritance becoming commingled property and all or a portion of the inheritance may be community property subject to division.

What If an Inherited Property Becomes the Family Home?

If a house inherited by one spouse becomes the family home for an extended time, the other spouse may claim half of the home’s value even if their name wasn’t added to the deed. This type of commingling occurs when the other spouse lives in the home, helps maintain it, and their income contributes to the home’s maintenance and improvements. Even if the non-inheriting spouse didn’t earn an income during the years they lived in the home, the courts presume that they helped support the other spouse’s career and income-earning by being a homemaker and raising children in the home, making it community property.

Does Inherited Property Remain Separate If We Have a Prenuptial or Post-Nuptial Agreement?

It’s easy to assume that inherited property remains the sole property of one spouse if they have a well-executed, enforceable prenuptial or post-nuptial agreement determining it as a separate asset. Many spouses allocate an inherited property, family heirloom, or other asset this way so they can later pass it on as a legacy for their children. So, does a prenup keep an inheritance separate?

The answer is yes and no—yes if the spouses carefully adhere to the terms of the prenuptial agreement, and no if they don’t. Most prenuptial agreements set specific terms for inherited property to prevent commingling. For instance, the terms of a prenup typically state that the inheritor of the property not use the property or its proceeds for marital benefit, add a spouse’s name to the deed, or allow a spouse access to inherited funds. If the spouses abide by the terms of their prenuptial agreement, the property isn’t subject to division. If they fail to do so, this portion of the prenuptial agreement is no longer enforceable. For this reason, even with the best prenuptial agreement, it’s best to seek the advice of an attorney before making any changes to inherited property.

Asset and property division is always a complex matter during a divorce, especially for divorcing spouses with many separate and joint assets. An experienced Newport Beach divorce attorney can help you navigate the issues of property division, including understanding separate inheritance.